Scientific Proof That High Frequency Trading Induces Adverse Changes In Market ......

Zerohedge ^ | 07/12/2010 23:46 -0500 | Tyler Durden

[Ernest_at_the_Beach]

Scientific Proof That High Frequency Trading Induces Adverse Changes In Market Microstructure And Dynamics, And Puts Market Fairness Under Question

Up until recently, any debate between proponents and opponents of High Frequency Trading would typically be represented by heated debates of high conviction on either side, with discussions rapidly deteriorating into ad hominem attacks and the producer screaming 'cut to commercial' to prevent fistfights. Luckily, all this is about to change. In a research paper by Reginald Smith of the Bouchet Franklin Institute in Rochester titled "Is high-frequency trading inducing changes in market microstructure and dynamics?" the author finds that he "can clearly demonstrate that HFT is having an increasingly large impact on the microstructure of equity trading dynamics. Traded value, and by extension trading volume, fluctuations are starting to show self-similarity at increasingly shorter timescales. Values which were once only present on the orders of several hours or days are now commonplace in the timescale of  seconds or minutes. It is important that the trading algorithms of HFT traders, as well as those who seek to understand, improve, or regulate HFT realize that the overall structure of trading is influenced in a measurable manner by HFT and that Gaussian noise  models of short term trading volume fluctuations likely are increasingly inapplicable." In other words, the author finds ample evidence that during the past decade (on the NASDAQ) and especially since the 2005 revision of Reg NMS (on the NYSE), stock trading increasingly demonstrates "self similar" fractal patterns, resulting in volatility surges, recursive feedback loops, and a market structure which is increasingly becoming a product of the actual trading mechanism.

[Ernest_at_the_Beach]

The paper is, needless to say, a must read for everyone who has an even passing interest in stock trading and market regulation (alas, yes, that would mean the SEC, and Congress).

[Gaffer]

Short for saying computers fudge up the natural trends. The fault with these programs is that humans write them.

[Ernest_at_the_Beach]

I just stumbled onto this while looking at BP ‘s stock history.

[who_would_fardels_bear]

I don't want anyone to label me a socialist.

So if a sufficient number of companies can bribe ... er make political contributions ... to a sufficient number of congressmen to keep HFT legal, then I'm all for it!

After all, if we make HFT illegal in American then every single investment company will move all of their business somewhere else, and only those places will gain the benefits of investment bubbles.

[SeekAndFind]

Pssst.... Want to make money in your career ?

Be a Quantitative Analyste/Software developer. Minimum 6 figures salary. That’s where many of our intelligent college grads are aspiring to become.

Here’s a sample Job Ad from MONSTER:

---

Algorithmic Trading Quant Developer for High Frequency Trading is currently being hired by my hedge fund client in New York City.

You will join a team of 10 Algorithmic Trading quant researchers and you will have the opportunity to interact with various senior quant traders and to use your strong analytical and programming skills to work on market microstructure for US Equity algorithmic trading. You will evaluate the market with traders and analysts and explore and test opportunities for improvement. The role came about following incredible financial success, demanding a team expansion. The group is at the forefront of the quant trading and the team is looking to expand from the bottom-up. They offer a training program with an extensive support network for those looking to develop into quant analysts and traders. The group is at the forefront of the quant trading industry and it is essential that you are comfortable with large sets of date and data analysis.

- 1-3 years experience quant developer
- Experience working with high frequency data
- C++ Programming
- MS or Phd (Computer Science, Mathematics, Physics, Econometrics, Engineering) from a leading faculty

- Strong programming ability to back test and implement strategies

My client is primarily focused on equities, but he is looking to expand into additional financial products, such as foreign exchange and interest rates. You will gain exposure to various products and have the opportunity to interact and learn from the top 5- managers, supervising a team of 10. Opportunity for travel to London available for training seminars with top-traders.

If you are looking to join one of the top 3 Algorithmic Trading business in the US, send your resume to Natasha Franck at Huxley Associates, immediately for consideration.
algorithmic trading, electronic trading, program trading, blackbox trading, C++, developer, quant developer, quant researcher, kdb, data analysis, vector based databases, statistics, pattern recognition, machine learning

---

Additional Information
Salary:
100000-250000
Position Type: Full Time, Employee
Ref Code: 1128712

[Eyes Unclouded]

Must respectfully disagree sir. Even as unfair as the trading system is now given the state of Congress, and the SEC, the less they act the better things will be.

[SeekAndFind]

Here is another advertisement for an Algorithmic Trading Developer for High Frequency Trading...

---

C++ - High Frequency trading developer, C++ Black Box Trading, C++

About the Job

This position is responsible for development and delivery of software solutions and iterative releases within a proprietary trading environment.

Principal Responsibilities

Work closely with traders to implement trading solutions.
Maintain, analyze and modify existing software applications.

Ensure accurate, proactive and realistic estimates for project software development timelines as assigned and tracked, ensuring accountability.

Work closely with Trading Support team to resolve technical issues, particularly related to development and real time fixes.

Provide suggestions for the ongoing maintenance of software code quality.

Ensure strong testing and debugging as part of the development process.

Continually gain and increase knowledge of high frequency trading strategies and trading operations.

Keep current on industry development and trends to maintain ongoing business savvy and awareness. Similarly, keep abreast of technical trends to ensure cutting edge solutions and competitive edge.

Maintain strong interpersonal and professional working relationships with peers and internal clients. Actively participate in Development meetings and discussions.

Qualifications-Knowledge, Skills and Abilities

3+ years of experience developing C++ based software

BS/minimum of an undergraduate degree, with a concentration in Math, Engineering, Physics or computer science

Excellent UNIX/Linux skills and SQL skills

Strong knowledge of OO programming techniques

Excellent communication skills (English language) – both written and oral System programming knowledge of Linux and Windows

Proficient with the use of STL and POSIX threads

Familiarity with scripting languages (Perl, UNIX Shell, awk, etc)

Knowledge of version and revision control practices and procedures

Proven success as a software developer

Financial services experience (in a fast paced trading environment) is strongly preferred

Positive attitude with great follow through and a strong customer and partner mentality

Ability to succeed and thrive in a flexible, entrepreneurial work environment

Ability to provide innovative and forward thinking solutions for business needs

Collaborative working style and abilities

Strong work ethic, self-starter, drive toward technical achievement and innovation

Company Overview: We are a privately funded company on the cutting edge of high-frequency trading, expanding the limits of what algorithmic trading means today. We pride ourselves on being an industry leader that quietly sets the standard for sophisticated trading strategies. The world financial markets are becoming faster, more complex, and more automated every day. In these changes, we see opportunity. Our team is passionate about taking advantage of the opportunities occurring around the world as exchanges continue to modernize and more products are traded electronically.

Company Description: Enjoy a casual workplace atmosphere and a flat organizational structure.

We are 200 people with a diverse set of backgrounds. What we have in common is a passion for being the best.

Our managing partners are passionate too - passionate about supporting the exploration of new strategies and ideas throughout the company. They not only encourage ideas, they expect them. We reward outstanding performance, no matter how junior the employee. We offer ample opportunity for mentorship and an open line of communication with our partners, so it is the individual who ultimately determines his or her success.

Salary : Minimum $100,000 to as high as $300,000 for the right person.

[jiggyboy]

if we make HFT illegal in American then every single investment company will move all of their business somewhere else, and only those places will gain the benefits of investment bubbles.

No, just the crooked ones. And if by "the benefits of investment bubbles", you mean 15% unemployment / underemployment, crashed home prices yet relatively few available for sale, etc., then they're welcome to them.

BTW, the "everybody will move business elsewhere" canard was a little threadbare slightly before sweatshops were outlawed in the early part of the 20th century.

[Ernest_at_the_Beach]

Wish I were younger.

[Gaffer]

Yes, a lot of good analytical and technical/programming skills that could be put to better use. In the end, the results most certainly are empirically tracked (by the profit) which spurs modifications to ‘improve’.

There's a certain principle by Heisenberg regarding uncertainty. Eventually, the scale of measurement/assessment is affected by the inability to separate the ‘measurement’ method from the ‘thing’ to be measured (e.g., resulting in feedback, error in measurement, influence of data, etc.)

[LomanBill]

Hos 12:7-9
7 The merchant uses dishonest scales;he loves to defraud.
8 Ephraim boasts,"I am very rich; I have become wealthy.With all my wealth they will not find in me any iniquity or sin."

9 "I am the Lord your God,[who brought you] out of Egypt; I will make you live in tents again,
as in the days of your appointed feasts.
NIV

 

It is incumbent upon the honorable craftsman to be aware

of whether or not his services are being used

as a means to accomplish evil ends -

and to act accordingly.

[Ernest_at_the_Beach]

Also by R.Smith:

The Spread of the Credit Crisis: View from a Stock Correlation Network

[Ernest_at_the_Beach]

Hmmm:

Who's Bouchet? Who's Franklin?

[DManA]

You can’t profit from short term fluctuations in the stock market anyway, and none of this effects long term moves, so I say this is irrelevant to anyone outside the big financial institutions and academia.

[Ernest_at_the_Beach]

Edward Alexander Bouchet

[Frantzie]

HFT and hedge funds are just like the 1920s era “investment pools” or manipulators which included Joe Kennedy.

HFT can also be used to take over govts - see the late summer of 2008. The public has no clue.

[super7man]

Sarcasm tag?

[who_would_fardels_bear]

Did I really need to add /sarc after my comments?

[jiggyboy]

TBTF disinformation agents are clearly at work on FR on this matter. They tend to use some pretty facile arguments but not as parody, so yeah you got me. “Topquark” was beyond obvious here
http://www.freerepublic.com/focus/news/2540454/posts
but there was some here as well
http://www.freerepublic.com/focus/f-news/2538130/posts

[DManA]

Nope.

[glorgau]

...

Third, this increased volatility due to self-similarity is not necessarily [TD: but very well could be as described above] the cause of several high profile crashes in stock prices such as that of Proctor & Gamble (PG) on May 6, 2010 or a subsequent jump (which initiated circuit breakers) of the Washington Post (WPO) on June 16, 2010.

Sounds like damages are due to owners of some stocks. I'm sure that some enterprising attorney could advance the theory that the NYSE engaged in a pattern of conduct that caused some fund(s) to lose money. CALPERS for example lost a bit of money.

[DManA]

Nope.

[Ernest_at_the_Beach]

Fractal market movements predict deep economic depression just ahead

*******************************

by Paul Raven @ 08-07-2010

It’s a great time to be a prophet of economic doom, because everyone’s still smarting badly enough from the last suckerpunch to take the threat of a groin-kick very seriously. And if you want a really bleak prediction, Robert Prechter’s ananlysis of fractal patterns in the market movements of the 1930s and 40s implies that the groin-kick will be delivered by an elephant wearing concrete boots [via TechnOccult]:

Originating in the writings of Ralph Nelson Elliott, an obscure accountant who found repetitive patterns, or “fractals,” in the stock market of the 1930s and ’40s, the theory suggests that an epic downswing is under way, Mr. Prechter said. But he argued that even skeptical investors should take his advice seriously.

“I’m saying: ‘Winter is coming. Buy a coat,’ ” he said. “Other people are advising people to stay naked. If I’m wrong, you’re not hurt. If they’re wrong, you’re dead. It’s pretty benign advice to opt for safety for a while.”

[...]

For a rough parallel, he said, go all the way back to England and the collapse of the South Sea Bubble in 1720, a crash that deterred people “from buying stocks for 100 years,” he said. This time, he said, “If I’m right, it will be such a shock that people will be telling their grandkids many years from now, ‘Don’t touch stocks.’ ”

The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. That unraveling, combined with a depression and deflation, will make anyone holding cash “extremely grateful for their prudence.”

Prechter’s analysis isn’t very popular, naturally.

The “mathematics don’t work,” Mr. Acampora said, because such a big decline would imply that individual stocks would need to trade at unrealistically low levels. Furthermore, he said, “I don’t want to agree with him, because if he’s right, we’ve basically got to go to the mountains with a gun and some soup cans, because it’s all over.”

Still, on a “near-term” basis, he said, “We’re probably saying the same thing.”

There’s a deep emotional component to Acampora’s response, there – the same one that keeps most of us from considering the real worst case scenarios. Caesar hears only what is pleasing unto Caesar, perhaps… but note that Acampora has shifted his own personal holdings to cash in the short term, so grim times are likely to be on the cards one way or the other.

But Doug Rushkoff, typically enough, sees an opportunity to build a better system on the ruins of the old:

Yes, this is really it. The beginning of a true end-of-cycle economically.

If you own “stocks,” use these bounces to get out completely. If you have to park your money somewhere, consider yourself lucky you have money to park.

The object of the game for those who actually have capital is not how to grow it, but how to keep it. Capital has driven our economy since 1300, and the recent bull market was the end of a cycle that began in the mid-1700′s.

The fact that it is ending is not the end of the world at all. It just means that there’s a whole lot of money out there with no place to go. People can’t find a place to park their money because there’s more money looking for investment than there is stuff to invest in.

And that’s because we’re finally in a technological era where great innovations are more about reducing the need to spend time, resources, and energy than they are about increasing it. iPads aside, of course.

Given the choice, I’ll take Rushkoff’s vision of the future, please. Will we make that choice for ourselves, and carry it through? I guess that’s down to us.

**************************************************************

I Came across this while searching for the Bouchet Franklin Institute in Rochester...

[Ernest_at_the_Beach]

Well now....just who is "Rushkoff:

Biography

Winner of the first Neil Postman award for Career Achievement in Public Intellectual Activity, Douglas Rushkoff is an author, teacher, and documentarian who focuses on the ways people, cultures, and institutions create, share, and influence each other’s values. He teaches media studies at the New School University, serves as technology columnist for The Daily Beast, and lectures around the world.

He has just released his most important book to date: an analysis of the corporate spectacle called Life Inc. for RandomHouse, as well as a series of short films called Life Inc Dispatches.

His ten best-selling books on new media and popular culture have been translated to over thirty languages. They include Cyberia, Media Virus, Playing the Future, Nothing Sacred: The Truth about Judaism, Get Back in the Box: Innovation from the Inside Out and Coercion, winner of the Marshall Mcluhan Award for best media book. Rushkoff also wrote the acclaimed novels Ecstasy Club and Exit Strategy and graphic novel, Club Zero-G. He wrote a series of graphic novels for Vertigo called Testament, and is currently working on another book for Vertigo as well as a new series of graphic novels for Smoking Gun Interactive.

He has written and hosted two award-winning Frontline documentaries – The Merchants of Cool looked at the influence of corporations on youth culture, and The Persuaders, about the cluttered landscape of marketing, and new efforts to overcome consumer resistance.

Rushkoff writes a column for the music and culture magazine, Arthur. His commentaries have aired on CBS Sunday Morning and NPR’s All Things Considered, and have appeared in publications from The New York Times to Time magazine. He wrote the first syndicated column on cyberculture for The New York Times and Guardian of London, as well as regular columns for Discover Magazine and The Feature.

Rushkoff is a PhD candidate at Utrecht University’s New Media Program. He has taught regularly for the MaybeLogic Academy, NYU’s Interactive Telecommunications Program, and the Esalen Institute. He also lectures about media, art, society, and change at conferences and universities around the world.

He serves on the Board of Directors of the Media Ecology Association, The Center for Cognitive Liberty and Ethics, and as a founding member of Technorealism, as well as the Advisory Board of The National Association for Media Literacy Education, MeetUp.com and HyperWords . He has been awarded Senior Fellowships by the Markle Foundation, the Center for Global Communications, and the International University of Japan. He served as an Advisor to the United Nations Commission on World Culture and regularly appears on TV shows from NBC Nightly News to Larry King and Bill Maher. He developed the Electronic Oracle software series for HarperCollins Interactive.

Rushkoff is on the board of several new media non-profits and companies, and regularly consults on new media arts and ethics to museums, governments, synagogues, churches, and universities, as well as Sony, TCI, advertising agencies, and other Fortune 500 companies.

Rushkoff graduated magna cum laude from Princeton University, received an MFA in Directing from California Institute of the Arts, a post-graduate fellowship (MFA) from The American Film Institute, and a Director’s Grant from the Academy of Motion Picture Arts and Sciences. He’s finishing his dissertation on media literacy and gaming for University Utrecht. He has worked as a certified stage fight choreographer, an SAT tutor, and as keyboardist for the industrial band PsychicTV.

[Ernest_at_the_Beach]

Well now who is Paul Raven of the article?....not the recently deceased musician...

Seems to write stuff that ends up on the http://futurismic.com/ website.....

An article on the website:

The new face of globalisation: outsourced childbearing and international water shipments

[Ernest_at_the_Beach]

Looking thru comments to the original article...mention is made of

arxiv.org

Cornell University --Open access to 614,877 e-prints in Physics, Mathematics, Computer Science, Quantitative Biology, Quantitative Finance and Statistics

[Ernest_at_the_Beach]

And:

arXiv API

****************************************EXCERPT**************************************************

This is the home site of the arXiv API. The goal of the API is to allow application developers access to all of the arXiv data, search and linking facilities with an easy-to-use programmatic interface. This page provides links to developer documentation, and gives instructions for how to join the mailing list and contact other developers and maintainers.

For more information about the arXiv API, please see our arxiv-api group, join the mailing list, or look at the API FAQ.

• API News

• About the arXiv API

• Quickstart

• Using the arXiv API

• arXiv API documentation

• Community

API News

See the arXiv API Blog for the latest news updates. Or you can subscribe to the API Blog feed.

About the arXiv API

The Cornell University Library e-print arXiv, hosted at arXiv.org, is a document submission and retrieval system that is heavily used by the physics, mathematics and computer science communities. It has become the primary means of communicating cutting-edge manuscripts on current and ongoing research. The open-access arXiv e-print repository is available worldwide, and presents no entry barriers to readers, thus facilitating scholarly communication. Manuscripts are often submitted to the arXiv before they are published by more traditional means. In some cases they may never be submitted or published elsewhere, and in others, arXiv-hosted manuscripts are used as the submission channel to traditional publishers such as the American Physical Society, and newer forms of publication such as the Journal for High Energy Physics and overlay journals.

The primary interface to the arXiv has been human-oriented html web pages. The purpose of the arXiv API is to allow programmatic access to the arXiv's e-print content and metadata. The goal of the interface is to facilitate new and creative use of the the vast body of material on the arXiv by providing a low barrier to entry for application developers.

Quickstart

API calls are made via an HTTP GET or POST requests to an appropriate url. For example, the url

http://export.arxiv.org/api/query?search_query=all:electron

retrieves results that match the search query all:electron. This url can be accessed from any web-enabled client including your web browser, or via web libraries common to almost all programming languages. There is no arXiv-supplied software that must be downloaded and installed to be able to use the api.

Please see Using the arXiv API, or the User's Manual for more information.

Using the arXiv API

Since the arXiv API is based on the now ubiquitous HTTP, using it should be fairly straight forward from the programming language of your choice. The primary access point for the api is a url that encodes your desired search parameters. For example, the url:

http://export.arxiv.org/api/query?search_query=all:electron&start=0&max_results=10

indicates that you want to use the api query interface to retrieve the first ten results that match the query all:electron. This url calls the api, which returns the results in the Atom 1.0 format.

Atom 1.0 is an xml-based format that is commonly used in website syndication feeds. It is lightweight, and human readable, and results can be cleanly read in many web browsers. For detailed information on Atom, you can read the official Atom 1.0 specification.

We recommend that you use a web browser such as to play around with constructing the api url's to get a feel for how the system works. This is also a great debugging tool to make sure your url's make sense to the api. Firefox renders Atom particularly cleanly. More detailed documentation on constructing API urls can be found in the User's Manual.

Once you have familiarized yourself with the api, you should be able to easily write programs that call the API automatically. Most programming languages, if not all, have libraries that allow you to make HTTP requests. Since Atom is growing, not all languages have libraries that support Atom parsing, so most of the programming effort will be in digesting the responses you receive. The languages that we know of that can easily handle calling the api via HTTP and parsing the results include:

• Perl (via XML::Atom) (example)

• Python (via feedparser) (example)

• Ruby (via feedtools) (example)

• PHP (via SimplePie) (example)

Below we include code snippets for these languages that perform the bare minimum functionality - calling the api and printing the raw Atom results. See the documentation and example programs for more detailed examples. If your favorite language is not up here, write us with an example, and we'll be glad to post it! For more detailed examples in these languages which cover more advanced API programming, please see the User's Manual.

All of the simple examples produce an output which looks like:

Example: A Typical Atom Response (wrapped for ease of reading, issue query now)

[vollmond]

You can’t profit from short term fluctuations in the stock market anyway, and none of this effects long term moves, so I say this is irrelevant to anyone outside the big financial institutions and academia.

Sarcasm tag?

I can't tell either. In HFT, the short term is the long term.

[Ernest_at_the_Beach]

From the comments to the article at ZeroHedge ( I agree with the comment ) :

*************************************************************************

by jbeyer
on Tue, 07/13/2010 - 02:13
#465880

It's funny how zerohedge pitches this as an academic paper.  It is clearly not peer-reviewed.  And the Bouchet-Franklin Institute in Rochester, NY?  It is this guy's "private lab": http://sites.google.com/site/reggiesmithsci/home

[Ernest_at_the_Beach]

This smells like a planted paper....

[Ernest_at_the_Beach]

Now googling ...with Reginald Smith of the Bouchet Franklin Institute

Turns up this:

Is There Anybody Out There?

****************************************EXCERPTS*************************************************

ategory: Astronomy • Physics • SF • Science
Posted on: February 3, 2009 8:55 AM, by Chad Orzel

The Arxiv blog highlights a post on John Scalzi's favorite science question: the Fermi Paradox:

We have little to guide us on the question of the existence intelligent life elsewhere in the universe. But the physicist Enrico Fermi came up with the most obvious question: if the universe is teeming with advanced civilizations, where are they?

The so-called Fermi Paradox has haunted SETI researchers ever since. Not least because the famous Drake equation, which attempts put a figure on the number intelligent civilisations out there now, implies that if the number of intelligent civilisations capable of communication in our galaxy is greater than 1, then we should eventually hear from them.

That overlooks one small factor, says Reginald Smith from the Bouchet-Franklin Institute in Rochester, New York state. He says that there is a limit to how far a signal from ET can travel before it becomes too faint to hear. And when you factor that in, everything changes.

I'm a little surprised that nobody has tried to account for this before, but maybe I shouldn't be. It seems like a fairly obvious effect-- the intensity of a signal drops off as the distance squared-- but it's not nearly as much fun to talk about as the other terms in the "Drake Equation." If you use the lack of detectable alien civilizations to talk about the probability of life evolving or the probability of technological civilization surviving, you're a Deep Thinker; if you start talking about detectable signal strengths and propagation delays, you're a great big nerd.

The cited paper is freely available on the arxiv, if you'd like to read more..

******************************************snip***************************************

To the comments:

*************************************************

Posted by: Romeo Vitelli | February 3, 2009 10:15 AM

2

This paper was blogged on Improbable Research yesterday.

I'm not competent to judge the paper itself, but Mr. Smith's background and webpage raises a few red flags. For one thing, the Bouchet-Franklin Institute is apparently located in Mr. Smith's den, and it has exactly one fellow, Reginald Smith, MBA.

Of course, that in itself doesn't mean the paper is flawed, but I'd be curious to get a physicist's reaction.

[DManA]

Not sure what that mean.

In HFT, the short term is the long term.

[Ernest_at_the_Beach]

Well,...now we have two papers ...mathematical in nature.....accepted into the Cornell University maintained

arxiv.org

:

Directions for using

***************************************EXCERPT****************************************

The Cornell University Library e-print arXiv, hosted at arXiv.org, is a document submission and retrieval system that is heavily used by the physics, mathematics and computer science communities. It has become the primary means of communicating cutting-edge manuscripts on current and ongoing research. The open-access arXiv e-print repository is available worldwide, and presents no entry barriers to readers, thus facilitating scholarly communication. Manuscripts are often submitted to the arXiv before they are published by more traditional means.

In some cases they may never be submitted or published elsewhere,
and in others, arXiv-hosted manuscripts are used as the submission channel to traditional publishers such as the American Physical Society, and newer forms of publication such as the Journal for High Energy Physics and overlay journals.

The primary interface to the arXiv has been human-oriented html web pages. The purpose of the arXiv API is to allow programmatic access to the arXiv's e-print content and metadata. The goal of the interface is to facilitate new and creative use of the the vast body of material on the arXiv by providing a low barrier to entry for application developers.

[Ernest_at_the_Beach]

Wonder how much else ...that Reginald Smith of the Bouchet Franklin Institute

Has published via the

Cornell maintained

arXiv.org

Gives me Ideas....

[Ernest_at_the_Beach]

Search at arXiv.org turns up 7 additional papers....

This one seems very genuine ...Abstract:

Instant Messaging as a Scale-Free Network

and PDF:

Instant Messaging as a Scale-Free Network

[vollmond]

Just that the trades are executed so quickly, a computer program can potentially make millions of trading decisions a day and execute them. A human being can’t make and execute that many trading decisions in a lifetime. So what we would consider the short term, a computer sees as a million opportunities to trade and make money - the long term.

[DManA]

True. I suspect this is a fad. Can’t make money over the long term with it. It’s a mania, resulting from desperation. It’s more a symptom of rot than the cause.

[SunkenCiv]

...the author finds that he "can clearly demonstrate that HFT is having an increasingly large impact on the microstructure of equity trading dynamics..."

Yeah, I think everyone from toddlers on up is familiar with that fabulous pageturner, "ETD -- Equity Trading Dynamics", and there's a whole chapter in there about microstructure, and another one titled "HTF -- High Frequency Trading".

Thanks Ernest, I've been needing a laugh all day. Sure, yes, it was actually one of Jewbacca's posts which did the trick but this whackadoo has staying power for his sheer absurdity.

[grey_whiskers]

Yah, me too.

OTOH, is there any way we can (with benefit of hindsight) reverse-engineer the algorithms and find a way to goad the HFT codes into behaviour *we* can profit from?

Head fake, then cold cock 'em.

Only needs to work but once...

I suspect, however, that this is why "dark pools" were developed, to prevent the computer codes from being gamed by outsiders.

Cheers!

[grey_whiskers]

There's a certain principle by Heisenberg regarding uncertainty.

How large is Planck's constant in Kruggerand * sec^-1 again?

Cheers!

[Bryan24]

One simple suggestion that would fix this very easily.

Only allow a stock and future to be traded once once per week.

Problem solved.

[grey_whiskers]

The fact that it is ending is not the end of the world at all. It just means that there’s a whole lot of money out there with no place to go. People can’t find a place to park their money because there’s more money looking for investment than there is stuff to invest in.

The answer is to find a new innovative product (first mover in a new market) and investment money will pour into your firm from around the planet.

The big boys have screwed the pooch by engaging in wage arbitrage to the point that they've decimated the high-price market which enabled the obscene profits in the first place.

Now they are faced with a dilemma: retract the wave of offshoring (sacrificing cost basis but again allowing large margins) OR shift everything else to the Third World (going for volume but never again picking up purchase price premiums as they once enjoyed).

The issue isn't, nor has it been, "poor" vs. "rich" nor "temperate vs. equatorial" nor "East" vs. "West": it has been the details of which quasi-equilibrium well in a multivariate economic hypersurface that TPTB wish to occupy. We are shifting from making money in safe, predictable, stable, slow-growing markets to attempting to make money in unsafe, dog-eat-dog, arbitrarily governed markets subject to sudden feast and famine.

Those who want to get rich themselves, on others' money, passing on the risk to Third Parties, and who rely on connections to allow them to re-enter the game, when once they would have been bankrupted, will naturally prefer the second -- at everyone else's expense.

Cheers!

[grey_whiskers]

Sounds like one of the modern autofellators to me.

Cheers!

[Marine_Uncle]

My brain is to fried at this point to even consider wading through this post. But thanks for the ping.

[snowsislander]

If you are asking whether or not legitimate papers are posted to arXiv, the answer is definitely "yes." The most famous, at least in my opinion, are Grigori Perelman's solution to the Poincaré conjecture (I guess that should now be the "Poincaré theorem"), for which he was awarded the Fields Medal and the first Clay Institute Millennium Prize (both of which he refused) --- no one else has ever solved any of the other Clay problems.

Mr. Perelman's papers at the arXiv:

The entropy formula for the Ricci flow and its geometric applications

Ricci flow with surgery on three-manifolds

Finite extinction time for the solutions to the Ricci flow on certain three-manifolds

Also, here is a readable New Yorker story on Mr. Perelman: Manifold Destiny.

[Ernest_at_the_Beach]

My concern was less than legitimate peer reviewed papers could get in...

[snowsislander]

My concern was less than legitimate peer reviewed papers could get in...

The answer to that also is "yes". Indeed, that's the point of arXiv; it's not for peer-reviewed papers, it's for rapid dissemination of pre-preview work, or for work that will never be submitted to a peer-review journal.

From the arXiv's website Can Peer Review be better Focused?:

arXiv Role and Lessons

The arXiv [6] is an automated distribution system for research articles, without the editorial operations associated to peer review. As a pure dissemination system, i.e., without peer review, it operates at a factor of 100 to 1000 times lower in cost than a conventionally peer-reviewed system [3]. This is the real lesson of the move to electronic formats and distribution: not that everything should somehow be free, but that with many of the production tasks automatable or off-loadable to the authors, the editorial costs will then dominate the costs of an unreviewed distribution system by many orders of magnitude. This is the subtle difference from the paper system, in which the expenses directly associated to print production and distribution were roughly the same order of magnitude as the editorial costs. When the two were comparable in cost, it wasn't as essential to ask whether the production and dissemination system should be decoupled from the intellectual authentication system. Now that the former may be feasible at a cost of less than 1% of the latter, the unavoidable question is whether the utility provided by the latter, in its naive extrapolation to electronic form, continues to justify the associated time and expense. Since many communities rely in an essential way on the structuring of the literature provided by the editorial process, a first related question is whether some hybrid methodology might provide all of the benefits of the current system, but for a cost somewhere in between the greater than $1000/article cost of current editorial methodology and the less than $10/article cost of a pure distribution system. A second question is whether a hybrid methodology might also be better optimized for the differing needs, on differing timescales, of expert readers on the one hand and neophytes on the other.

The arXiv was initiated in 1991, before any physics journals were on-line. Its original intent was not to supplant journals, but to provide equal and uniform global access to prepublication materials (originally it was only to have had a three month retention time). Due to the multi-year period from '91 until established journals did come on-line en masse, the arXiv de facto took on a much larger role, by providing the unique on-line platform for near-term (5-10 yr) "archival" access. Electronic offerings have of course become commonplace since the early 1990's: many publishers now put new material on-line in e-first mode, and the searchability, internal reference linking, and viewable formats they provide are at least as good as those of the automated arXiv. These conventional publishers are also set up to provide superior services wherever manual oversight, at additional cost, can improve on the author's product: e.g., correcting bibliographic errors and standardizing the front- and back-matter for automated harvesting. (Some of these costs may ultimately decline or disappear, however, with a more standardized "next-generation" document format, and improved authoring tools to produce it -- developments from which automated distribution systems will benefit equally.)

We can now consider the current roles of the arXiv and of the on-line physics journals and assess their overlap. Primarily, the arXiv provides instant pre-review dissemination, aggregated on a field-wide basis, a breadth far beyond the capacity of any one journal. The journals augment this with some measure of authentication of authors (they are who they claim to be), and a certain amount of quality control of the research content. This latter, as mentioned, provides at least the minimum certification of "not obviously incorrect, not obviously uninteresting"; and in many cases provides more than that, e.g., those journals known to have higher selectivity convey an additional measure of short-term prestige. Both the arXiv and the journals provide access to past materials; and one could argue that arXiv benefits in this regard from the post facto certification functions provided by the journals. It is occasionally argued that organized journals may be able to provide a greater degree of long-term archival stability, both in aggregate and for individual items, though looking a century or more into the future this is really difficult to project one way or another.

With conventional overlapping journals having made so much on-line progress, does there remain a continued role for the arXiv, or is it on the verge of obsolescence? Informal polls of physicists suggest that it remains unthinkable to discontinue the resource, that it would simply have to be reinvented because it plays some essential role not fulfilled by any other. Hard statistics substantiate this: over 20 million full text downloads during calendar year '02, on average the full text of each submission downloaded over 300 times in the 7 years from '96-'02, and some downloaded in the tens of thousands of times. The usage is significantly higher than comparable on-line journals in the field, and, most importantly, the access numbers have accelerated upwards as the conventional journals have come on-line over the past seven years. This is not to suggest, however, that physicist users are in favor of rapid discontinuation of the conventional journal system either.

What then is so essential about the arXiv to its users? The immediate answer is "Well, it's obvious. It gives instant communication, without having to wait a few months for the peer review process." Does that mean that one should then remove items after some fixed time period? The answer is still "No, it remains incredibly useful as a comprehensive archival aggregator," i.e., a place where for certain fields instead of reading any particular journal, or set of journals, one can browse or search and be certain that the relevant article is there, and if it's not there it's because it doesn't exist. (This latter archival usage is the more problematic with respect to the refereed journals, since the free availability could undercut the subscription-based financial models -- presuming the author-provided version is functionally indistinguishable from the later journal version).

It has been remarked [7] that physicists use the arXiv site and do not appear concerned that the papers on it are not refereed. The vast majority of submissions are nonetheless submitted in parallel to conventional journals (at no "cost" to the author), and those that aren't are most frequently items such as theses or contributions to conference proceedings that nonetheless have undergone some effective form of review. Moreover, the site has never been a random UseNet newsgroup-like free-for-all. From the outset, a variety of heuristic screening mechanisms have been in place to ensure insofar as possible that submissions are at least of refereeable quality. That means they satisfy the minimal criterion that they would not be peremptorily rejected by any competent journal editor as nutty, offensive, or otherwise manifestly inappropriate, and would instead at least in principle be suitable for review (i.e., without the risk of alienating or wasting the time of a referee, that essential unaccounted resource). These mechanisms are an important -- if not essential -- component of why readers find the site so useful: though the most recently submitted articles have not yet necessarily undergone formal review, the vast majority of the articles can, would, or do eventually satisfy editorial requirements somewhere. Virtually all are in that grey area of decidability, and virtually none are entirely useless to active physicists. That is probably why expert arXiv readers are eager and willing to navigate the raw deposited material, and greatly value the accelerated availability over the filtering and refinement provided by the journal editorial processes (even as little as a few months later).

[Ernest_at_the_Beach]

Thanks....will try to get to this later....