Showing posts with label MSc in Finance. Show all posts
Showing posts with label MSc in Finance. Show all posts

Thursday, January 29, 2015

29/1/15: Where the Models Are Wanting: Banking Sector & Modern Investment Theory


My new post for Learn Signal blog covering the shortcomings of some core equity valuation models when it comes to banking sector stocks analysis is now available here: http://blog.learnsignal.com/?p=152.

Tune in next week to read the second part, covering networks impact on core valuation models validity.

Monday, July 15, 2013

15/7/2013: Two notes on HFT effects on the markets


Two interesting notes on the financial markets general operational issues in relation to High Frequency Trading (HFT).


A quick post from the Aziz Economics: http://azizonomics.com/2013/06/15/have-financial-markets-gone-post-human/ on the topic of HFT and data disclosure. Do read the Nanex post cited: http://www.nanex.net/aqck2/4302.html

Basic idea is that speed of light separates trades in the current market. With some data being released in different formats and to different audiences at different times, this difference drives a massive wedge between HFT trades and ordinary order flows.

And a couple of quotes:

"... is having a two second jump on the market “insider trading”? Well, yes — but it’s legal insider trading with consent, out in the open."

Yep, you can pay more to get information ahead of everyone and then pay a bit more to execute trades ahead of the mere mortals. You can then collect the upside (you'd have to be pretty dim-witted to collect a downside on such a trade).

And that means that the old-fashioned elbow-grease and hard labour analysing stuff, forecasting it, setting a strategy, hedging etc… all become subservient to the speed of access + speed of execution.

Human is gone. Algo is in...
"… perhaps the beginning of the end for human traders is just the end of the beginning for global financial markets. Perhaps that is less of a death sentence, and more of a liberation, allowing talented human labour that in recent years has been channelled into unproductive and obscure projects in big finance to move into more productive domains."

I don't know. But I'd like to think a person is still somewhere under the sun in the markets. Otherwise, how can be make any connection between the financial markets, instruments traded and real side of the economy, aside from the sides glimpsed through high-frequency-advanced-release mechanism?..



And a paper on HFT effects on market index here: http://www.nature.com/srep/2013/130702/srep02110/full/srep02110.html

The paper shows that in short time scales stocks have a stronger influence on the index, rather than index has on stocks that are constituents of the index. This is encouraging, as it suggests that within shorter time horizons, extreme HFT-linked instrumentation of index is far less of a driver than HFT-linked instrumentation of individual stocks. In other words, whatever relevant information is contained in the stock gets indeed transmitted into index at high frequency and this information dominates index-own changes.