Wednesday, August 8, 2012

Faster than Common Sense

Here's a very good article from Wired on high-frequency trading.

Trading increasingly is an end in itself, operating at a remove from the goods-and-services-producing part of the economy and taking a growing share of GDP—twice what it did a century ago, when Wall Street was financing the enormous industrial expansion of the economy. “This is counterintuitive, to say the least,” wrote New York University economist Thomas Philippon in an article for the Russell Sage Foundation. “How is it possible for today’s finance industry not to be significantly more efficient than the finance industry of John Pierpont Morgan?”

I just don't believe that more than a few algos can really make consistent money out of exploiting market mispricing and anomalies. It's more flaws in the structure of the market itself. This is all making the case for a Tobin Tax look stronger.

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