tag:blogger.com,1999:blog-17232051.post7495410399665923762..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: Book Review: Flash BoysNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-17232051.post-32428817185324409412014-04-21T18:06:59.438-04:002014-04-21T18:06:59.438-04:00The cat vs moneymanager experiment primarily works...The cat vs moneymanager experiment primarily works because of smallcap bias which has outperformed the last 10 years. Something like 90% of all randomly generated equally weighted portfolios of 20 stocks outperformed the market-cap weighted S&P 500 index the last ten years. Nothing margical.Curt Chttps://www.blogger.com/profile/12202209310527712468noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-30125622499782269432014-04-17T01:12:24.638-04:002014-04-17T01:12:24.638-04:00In the Atlantic article you link to nice point on ...In the Atlantic article you link to nice point on the math of compound interest. Just a 1% less return will eventually mean you have half as much money. In fact, after enough time it will mean you have 99% less money, and so on.<br /><br />How long? It depends one percent less than what. The historical average real, inflation-adjusted, return on a well-diversified stock portfolio is about 7%. The expense ratio on a good index fund is near zero, about 0.05%. So, let's compare a 7% return to a 6% return, which you can quickly do with an Excel spread sheet. It actually takes 63 years for an amount of money invested at 7% to end up twice as large as an amount invested at 6%, so a long time. But if you're investing for your children,…<br /><br />Still, after 40 years, not that long a time for a 401k, it's 47% more! But only your beginning money is 40 years old; next year's contributions are one year less old, have had one year less to grow, and so on. Compare, then, $400/month ($4,800/year) over 40 years at 7% to at 6%. It's $958k to $743k, so you end up with 29% more money! No small amount. And on top of this, a lot of these funds hype with things like trendy high tech stocks, that can be very risky. And, there are big incentives, often, for these money managers to really gamble, heads they win, tails you lose.<br /><br />Still, if everyone does index funds, who pushes prices towards their fundamental values? Not to worry; that's certainly not a job for laypeople; that would be left to the sophisticated Warren Buffet types, and good hedge fund managers, where it should be left. Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-12510681587977361502014-04-16T21:21:07.917-04:002014-04-16T21:21:07.917-04:00Noah: not quite. Reg NMS is a set of regulatory r...Noah: not quite. Reg NMS is a set of regulatory rules by SEC, which are imposed on all market participants, HFT or not. All of them have to write software to comply with it. So this has nothing to do with HFT and is not in any way a benefit to HFT per se.<br /><br />As far as other technical challenges, well, sure, and we should leave alone all industries which are net externality positive, no?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-37524316032058748732014-04-16T15:06:05.064-04:002014-04-16T15:06:05.064-04:00Considering how easily it was destroyed, was it re...Considering how easily it was destroyed, was it really such a waste of engineering talent?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-23809633559227234432014-04-16T13:39:02.023-04:002014-04-16T13:39:02.023-04:00The "cat vs Money Manager" thing fascina...The "cat vs Money Manager" thing fascinates me. Do the latter only survive because so many investors are ignorant, gullible, or foolish? Is it just the market taking forever to clear?Bretthttps://www.blogger.com/profile/05741738070067590221noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-45844728295912366982014-04-16T13:14:34.793-04:002014-04-16T13:14:34.793-04:00"HFT was mostly financed by credit that would..."HFT was mostly financed by credit that would *not* have have otherwise been created, by private banks." <br /><br />Please cite your evidence for that claim, because I would love to read it. <br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-23368104783333604812014-04-16T12:14:24.355-04:002014-04-16T12:14:24.355-04:00Anon:
Your point #1 slightly contradicts your poi...Anon:<br /><br />Your point #1 slightly contradicts your point #2, wouldn't you say? Also, a lot of other tough technical challenges generate positive spinoffs too.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-74117150319261563892014-04-16T10:45:24.950-04:002014-04-16T10:45:24.950-04:00Do I see a contradiction here?
1. "If this r...Do I see a contradiction here?<br />1. "If this regulation were changed, a lot of the things HFT is doing would no longer make money."<br />2. " a lot of financial economists have been calling for this regulation to be changed"<br />PabloPablo Mirahttps://www.blogger.com/profile/02187773776485667539noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-55529288602269842532014-04-16T09:22:08.356-04:002014-04-16T09:22:08.356-04:00Really? HFTs don't have customers typically. ...Really? HFTs don't have customers typically. How can they front run customers they do not have? From Wikipedia<br /><br />http://en.wikipedia.org/wiki/Front_running<br /><br />Front running is the illegal practice of a stockbroker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers. When orders previously submitted by its customers will predictably affect the price of the security, purchasing first for its own account gives the broker an unfair advantage, since it can expect to close out its position at a profit based on the new price level. The front running broker either buys for his own account (before filling customer buy orders that drive up the price), or sells (where the broker sells for its own account, before filling customer sell orders that drive down the price).<br /><br />Allegations of front running occasionally arise in stock and commodity exchanges, in scandals concerning floor brokers and exchange specialists. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-28354940034149790762014-04-16T09:15:34.206-04:002014-04-16T09:15:34.206-04:00Front-running is what HFT outfits do. It's com...Front-running is what HFT outfits do. It's completely unjustifiable on moral and legal grounds, despite the desperate spinning about its marginal utility by its practitioners and proponents.Unknownhttps://www.blogger.com/profile/13259146811206690824noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-58583435392563591502014-04-16T07:40:35.851-04:002014-04-16T07:40:35.851-04:00A couple of thoughts from an HFT trader
1) HFT e...A couple of thoughts from an HFT trader<br /><br />1) HFT existed before Reg NMS. Reg NMS is a big pain for HFT because in order to be fully compliant, it is necessary to spend enormous resources on engineering, legal and compliance. I am not sure who it is good for, but HFT would be better off without it<br /><br />2) Social Waste - this is, I am sorry to say, bad economics. <br /><br />When private money is spent in the course of competing for profits in any industry, lots of positive externalities are generated. For example, HFT industry spends a lot of money on high performance hardware, thus effectively subsidizing its development. Or let's take Spread Networks, the line that was installed at a cost of hundreds of millions, between Chicago and NJ. You realize, this is just a fast, high performance telecom line? Right? it can be used for voice, video, whatever you like. The existence of this line, which was heavily subsidized by HFT, is a great thing !<br /><br />3) You mentioned this. Why do these investors trade with HFTs so much in the first place? We just gave a Nobel prize in economics to the guy who says they have no alpha whatsoever. They are the real social waste<br /><br />4) Maybe it is true that society would be in theory better off if these MIT grads worked on self driving cards instead of HFT. But, we do have a free society. People do want to work on whatever they want. What do most startups in California work on? Self drviing cards or photo apps ?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-47407582234531467322014-04-16T04:14:25.200-04:002014-04-16T04:14:25.200-04:00Not a fan of HFT, but HFT was mostly financed by c...Not a fan of HFT, but HFT was mostly financed by credit that would *not* have have otherwise been created, by private banks. Is there some shortage of networking gear in some other part of the economy that would have provided +10 utils? If not, then the marginal demand created for networking gear was additive to GDP.<br /><br />Why is HFT investment an example of resource opportunity cost, but government does the same thing it's "glorious expansionary Keynesian stimulus for motherland GDP"? When did Krugman suddenly adopt "the Treasury view", or does social opportunity cost only come into play when the private sector invests capital?<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-85596851287133482562014-04-15T16:32:01.721-04:002014-04-15T16:32:01.721-04:00"The Death Star, if you think about it, was a..."The Death Star, if you think about it, was a massive waste of engineering talent."<br /><br />Balancing the opportunity cost of doing it against the opportunity cost of building a new Chewbacca planet after theirs was destroyed, I say it was a huge waste of engineering talent. QED.<br /><br />RIP Chewbacca.Jefftopiahttps://www.blogger.com/profile/05005211633248766565noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-37041735461776834092014-04-15T16:11:51.023-04:002014-04-15T16:11:51.023-04:00"This result is, of course, supported by a lo..."This result is, of course, supported by a long line of academic research into the unimpressive of professional money managers"<br /><br />Read that sentence again.J. Edgar Mihelichttps://www.blogger.com/profile/08735224229199089531noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-22577701168391503682014-04-15T15:31:41.869-04:002014-04-15T15:31:41.869-04:00Also the Keynesians would point out that the same ...Also the Keynesians would point out that the same multiplier effects that sometimes come from wasteful investment could also be produced by smarter investment.<br /><br />If the primary impact of some investment is -5 utils, but it produces +10 utils of additional multiplier effect benefits, and it is compared to an alternative that produces the the same +10 multiplier effect with a +5 primary effect, then while both investments have a positive net utility, you should definitely choose the second.<br /><br />Why pay people to bury money in bottles when you could pay the same amount of people the same amount of money to plant trees?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-38584192333389720532014-04-15T14:56:58.359-04:002014-04-15T14:56:58.359-04:00Well, the Keynesian theory says that although that...Well, the Keynesian theory says that although that seems like a waste, and usually is, occasionally it's actually not a waste!Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-4996843924544804272014-04-15T14:51:57.924-04:002014-04-15T14:51:57.924-04:00"The Death Star, if you think about it, was a..."The Death Star, if you think about it, was a massive waste of engineering talent."<br /><br />Can you explain why this is bad, but burying money in bottles to be dug out of the ground is good? Doesn't the Keynesian multiplier make this possibly beneficial?<br /><br />Unless we're running out of fiber, I'd say this is a deployment of otherwise idle resources. And we need more, rather than fewer jobs for our newly trained computer science majors.marrishttps://www.blogger.com/profile/07508519250212893577noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-18500552435904040072014-04-15T14:31:52.261-04:002014-04-15T14:31:52.261-04:00Sorry, forgot to post the link!
http://www.theatl...Sorry, forgot to post the link!<br /><br />http://www.theatlantic.com/business/archive/2014/04/everything-you-need-to-know-about-high-frequency-trading/360411/KVnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-52271318237972590462014-04-15T14:30:45.196-04:002014-04-15T14:30:45.196-04:00Noah,
Here is an article in Atlantic on HFT showi...Noah,<br /><br />Here is an article in Atlantic on HFT showing that there is inefficiency in the market at a few hundred milliseconds levels. Before computers, bid and ask spread was very large (market being inefficient) and broker commissions were very high, about 10 or 20 times what one pays today.<br /><br />Pension fund managers trade for one simple reason: they get commission based on asset under management and they can drive prices up at the end of the month, quarter or year that maximizes their commissions, or they are out for themselves, like cat on the prowl. To do this, they need to churn the market and HFT does that.<br /><br />Did this happen before HFT? Of course it did, but we did not have the visibility in their business. <br /><br />Is there a solution for it? Yes, just take the time advantage away from HFT traders by equalizing and randomizing the trade orders without telling them! (NYSE and others sell this knowledge to HFT traders). Effectively get HFT traders to put their skin in the game.KVnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-8680189537905757332014-04-15T14:06:17.759-04:002014-04-15T14:06:17.759-04:00"The Death Star, if you think about it, was a..."The Death Star, if you think about it, was a massive waste of engineering talent."<br /><br />Balancing opportunity cost of doing it against opportunity cost of not doing it, I say it wasn't a massive waste of engineering talent.Anonymoushttps://www.blogger.com/profile/17797928102421103389noreply@blogger.com