Economics, Global Markets and Finance

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Economics, Global Markets and Finance

Postby mister bacon » 19 Oct 2007, 23:41

i was doing some reading tonight regarding the volatility in the market, and thought i came across this article.. which explain the origins of the meltdown in the market, even in those blue chip stocks in no way related to the housing market.

in general, i read the economist and wsj for my financial news.. but i have recently added the sister site of Above the Law to my daily perusing, called Dealbreaker.. where i found the article linked above.

anyone want to posit an opinion on this?

what are your thoughts?
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Postby Iron Mike Sharpe » 20 Oct 2007, 04:15

Damn, I thought this was a _ thread.
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Postby mister bacon » 20 Oct 2007, 08:50

Iron Mike Sharpe wrote:Damn, I thought this was a _ thread.


you can bet he will be making an underwhelming appearance.
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Postby Frank the Tank » 20 Oct 2007, 09:04

I think the primary risk in quantitative trading methods is that the same market trends are observable to all the quants in the market, therefore they tend to make similar models. It's not just that they all get punished when a three-standard-deviation event occurs, but that since they have so much money in these funds and they all act in concert that they actually help push the market towards these events. It reminds me of the day when Fidelity's Magellan fund got so big it was moving the market every time it jumped in or out of a stock. None of these quant funds are that big, but if they're all acting together because they have similar models they function like a big beast pushing the market towards the edge.
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Postby mister bacon » 20 Oct 2007, 09:12

Frank the Tank wrote:I think the primary risk in quantitative trading methods is that the same market trends are observable to all the quants in the market, therefore they tend to make similar models. It's not just that they all get punished when a three-standard-deviation event occurs, but that since they have so much money in these funds and they all act in concert that they actually help push the market towards these events. It reminds me of the day when Fidelity's Magellan fund got so big it was moving the market every time it jumped in or out of a stock. None of these quant funds are that big, but if they're all acting together because they have similar models they function like a big beast pushing the market towards the edge.



for a bunch of different guys they seem to be using the same mathmatical formulas to observe trends. it has been a while since there was something fresh and new programmed. i worked on a very top-secret deal for a couple of quants looking to exit a very prestigious investment bank this summer, who laid it out in the prospectus for the new joint venture they were forming with an investment fund. everyone observing the same data is bound to come to similar conclusions using these kinds of analysis right? so should it be any surprise when they start to push the market around? the guys had a fresh, new design for option trading software they had been working on in their free time... complete with new methods of valuation which would take advantage of different inefficiencies than the current platforms designed between 10-15 years ago.

all of this makes me wish i was better at math.
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mj3528 wrote: I hate panhandlers with dogs. I feel so bad for the dog.

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Postby Frank the Tank » 20 Oct 2007, 09:19

mister bacon wrote:
Frank the Tank wrote:I think the primary risk in quantitative trading methods is that the same market trends are observable to all the quants in the market, therefore they tend to make similar models. It's not just that they all get punished when a three-standard-deviation event occurs, but that since they have so much money in these funds and they all act in concert that they actually help push the market towards these events. It reminds me of the day when Fidelity's Magellan fund got so big it was moving the market every time it jumped in or out of a stock. None of these quant funds are that big, but if they're all acting together because they have similar models they function like a big beast pushing the market towards the edge.



for a bunch of different guys they seem to be using the same mathmatical formulas to observe trends. it has been a while since there was something fresh and new programmed. i worked on a very top-secret deal for a couple of quants looking to exit a very prestigious investment bank this summer, who laid it out in the prospectus for the new joint venture they were forming with an investment fund. everyone observing the same data is bound to come to similar conclusions using these kinds of analysis right? so should it be any surprise when they start to push the market around? the guys had a fresh, new design for option trading software they had been working on in their free time... complete with new methods of valuation which would take advantage of different inefficiencies than the current platforms designed between 10-15 years ago.

all of this makes me wish i was better at math.


I'm sure these guys are brilliant, but ever since the whole current class of quants was created in the Long Term Capital Management era (ten years ago) it's been getting harder and harder to find trends that other people haven't. Computers are still getting faster, and (more importantly) data is easier to obtain every day on any economic indicator you want to track, whether it's housing starts, regional unemployment figures, or frozen concentrated orange juice price movements. Statistical software makes it easier to determine correlations between prices of anything in a liquid trading market (equities, bonds, commodities, CDO's, etc.) and other indicators, either financial or non-financial. If your clients were the first to market with some new model that's great, but their window of time before someone else essentially duplicates it is very short.
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Postby myherobobhope » 20 Oct 2007, 09:27

mister bacon wrote:
Frank the Tank wrote:I think the primary risk in quantitative trading methods is that the same market trends are observable to all the quants in the market, therefore they tend to make similar models. It's not just that they all get punished when a three-standard-deviation event occurs, but that since they have so much money in these funds and they all act in concert that they actually help push the market towards these events. It reminds me of the day when Fidelity's Magellan fund got so big it was moving the market every time it jumped in or out of a stock. None of these quant funds are that big, but if they're all acting together because they have similar models they function like a big beast pushing the market towards the edge.



for a bunch of different guys they seem to be using the same mathmatical formulas to observe trends. it has been a while since there was something fresh and new programmed. i worked on a very top-secret deal for a couple of quants looking to exit a very prestigious investment bank this summer, who laid it out in the prospectus for the new joint venture they were forming with an investment fund. everyone observing the same data is bound to come to similar conclusions using these kinds of analysis right? so should it be any surprise when they start to push the market around? the guys had a fresh, new design for option trading software they had been working on in their free time... complete with new methods of valuation which would take advantage of different inefficiencies than the current platforms designed between 10-15 years ago.

all of this makes me wish i was better at math.


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Postby mister bacon » 20 Oct 2007, 09:28

Frank the Tank wrote:I'm sure these guys are brilliant, but ever since the whole current class of quants was created in the Long Term Capital Management era (ten years ago) it's been getting harder and harder to find trends that other people haven't. Computers are still getting faster, and (more importantly) data is easier to obtain every day on any economic indicator you want to track, whether it's housing starts, regional unemployment figures, or frozen concentrated orange juice price movements. Statistical software makes it easier to determine correlations between prices of anything in a liquid trading market (equities, bonds, commodities, CDO's, etc.) and other indicators, either financial or non-financial. If your clients were the first to market with some new model that's great, but their window of time before someone else essentially duplicates it is very short.


i agree with you, and this makes sense. there is a finite number of things that these people can use.. and eventually this method will be just as stale a method as all the others. how much longer does this method have in it before it becomes as tired as the others? can this method of investing cause a serious financial crisis on a very bad day?
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Postby myherobobhope » 20 Oct 2007, 09:33

mister bacon wrote:
Frank the Tank wrote:I'm sure these guys are brilliant, but ever since the whole current class of quants was created in the Long Term Capital Management era (ten years ago) it's been getting harder and harder to find trends that other people haven't. Computers are still getting faster, and (more importantly) data is easier to obtain every day on any economic indicator you want to track, whether it's housing starts, regional unemployment figures, or frozen concentrated orange juice price movements. Statistical software makes it easier to determine correlations between prices of anything in a liquid trading market (equities, bonds, commodities, CDO's, etc.) and other indicators, either financial or non-financial. If your clients were the first to market with some new model that's great, but their window of time before someone else essentially duplicates it is very short.


i agree with you, and this makes sense. there is a finite number of things that these people can use.. and eventually this method will be just as stale a method as all the others. how much longer does this method have in it before it becomes as tired as the others? can this method of investing cause a serious financial crisis on a very bad day?


I think the problem is, if everyone is using the same model, and an event happens that triggers a massive sell in one, it will trigger a massive sell in all the other.

What's interesting is most of these computer systems are basically meant to forecast human nature (at least I think that's what they are doing), so eventually we will arrive at a meta system where computers are forecasting what computers that are forecasting what humans will do are forecasting. (In other words a computer will be trained to think like a computer).

The worlds a huge place, with lots of inputs, and lots of randomness. I'm not sure a computer will ever be able to accurately forecast what is going to happen... if that is true, and all the computer systems have the same flaw, then there is likely to be a Y2K like problem... something simple, but something that fucks everything.
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Postby Frank the Tank » 20 Oct 2007, 09:35

mister bacon wrote:i agree with you, and this makes sense. there is a finite number of things that these people can use.. and eventually this method will be just as stale a method as all the others. how much longer does this method have in it before it becomes as tired as the others? can this method of investing cause a serious financial crisis on a very bad day?


I think eventually people will realize that there is little advantage to be gained when everybody's systems become roughly equivalent. However, in the meantime, I think there'll be a lot of gaming trying to get edges in trades. Real-time trading isn't a reality now, but we're getting closer. Being able to execute a 10,000 share buy/sell order in one second versus five seconds will be a HUGE edge in the next five years. Look for these funds to try to use every advantage they can, both ethical (investing heavily in technology to get a speed edge) and unethical (pressuring their traders to delay other clients' transactions by a few seconds).
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Postby myherobobhope » 20 Oct 2007, 09:39

Just out of interest, have either of you read Ugly Americans... it's by the guy who wrote Bringing Down the House. Basically it's about Americans going to Asia and taking advantage of an economic system that lags behind ours. It's exceedingly interesting.
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Postby mister bacon » 20 Oct 2007, 09:42

myherobobhope wrote:Just out of interest, have either of you read Ugly Americans... it's by the guy who wrote Bringing Down the House. Basically it's about Americans going to Asia and taking advantage of an economic system that lags behind ours. It's exceedingly interesting.



thanks bob, i will have to check this out. it sounds very interesting.


next topic:

china holds a lot of American debt.. what do you think about this? good? bad? what do you think about them using "economic warfare" as a method of increasing their stature on the geopolitcal world?
Last edited by mister bacon on 20 Oct 2007, 09:45, edited 1 time in total.
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mj3528 wrote: I hate panhandlers with dogs. I feel so bad for the dog.

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Postby myherobobhope » 20 Oct 2007, 09:43

mister bacon wrote:
myherobobhope wrote:Just out of interest, have either of you read Ugly Americans... it's by the guy who wrote Bringing Down the House. Basically it's about Americans going to Asia and taking advantage of an economic system that lags behind ours. It's exceedingly interesting.



thanks bob, i will have to check this out. it sounds very interesting.


The link I gave may even put money in FB's pocket.
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Postby Frank the Tank » 20 Oct 2007, 09:45

myherobobhope wrote:Just out of interest, have either of you read Ugly Americans... it's by the guy who wrote Bringing Down the House. Basically it's about Americans going to Asia and taking advantage of an economic system that lags behind ours. It's exceedingly interesting.


I haven't read that, but it makes a whole lot of sense. Think about it: how do you get an edge over your competitors in the market? Three primary drivers:

1) Better information
2) Economy of scale
3) Quicker reaction time

Information in a lot of developing countries is very difficult to come by, so there's a huge arbitrage opportunity there if you can be smarter than your competitors. The 250th biggest investment fund here has more money than any private fund has in any developing nation so the ability to make a "big splash" is a huge advantage. And most American firms have two decades worth of systems development behind them when most CEEMEA countries are still enthralled by PC's with Windows 98. There should be thousands of opportunities to make a buck out there.
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Postby mister bacon » 20 Oct 2007, 09:46

myherobobhope wrote:
mister bacon wrote:
myherobobhope wrote:Just out of interest, have either of you read Ugly Americans... it's by the guy who wrote Bringing Down the House. Basically it's about Americans going to Asia and taking advantage of an economic system that lags behind ours. It's exceedingly interesting.



thanks bob, i will have to check this out. it sounds very interesting.


The link I gave may even put money in FB's pocket.



next topic:

china holds a lot of American debt.. what do you think about this? good? bad? what do you think about them using "economic warfare" as a method of increasing their stature on the geopolitcal stage?

what about them pegging their currency to ours?
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mj3528 wrote: I hate panhandlers with dogs. I feel so bad for the dog.

ctz31 - Mon Dec 12, 2016 10:30 pm: I'm gonna win a chip w romo. I'm done w blacks. No offense
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