"Des waerelds doen en doolen, is maar een mallemoolen,"

"Des waerelds doen en doolen, is maar een mallemoolen," engraving from Het Groote Tafereel der Dwaasheid, 1720.

"The actions and designs of the world go round as if in a mill." South Sea bubble financial crisis.

Monday, March 28, 2011

The paradox of efficiency - Robot trading

High Frequency Trading strategies which use robots to trade is the result of a process of financial development and its quest for efficiency. But we begin to see the limits of this development which lead sometimes to contradictions, such as the "Hathaway effect”. The theory is still to be proven, but the bluntly put (from the FT):
if Ms Hathaway is in the news, Warren Buffett’s Berkshire Hathaway stock jumps too.

Mr Mirvish, the blogger who spotted the trend
pointed the finger at confused robotraders – the complex algorithms that execute 70 per cent of stock trades, sometimes by scanning news stories for trends.

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