source: Visual Capitalist
Thara – A contrarian sign of things to come in the future? Relaxing requirement for setting up a bank is a sign that people is becoming complacent about the future risk of bank collapsing. It seems that the memory of 2008/2009 is slowly being locked away in the deepest part or our brain, only to resurface during the next crisis.
Does that mean we are more likely to see banking sector outperforming other sectors? Or this is a sign that market (bankers) is expecting a rate rise soon? Only time will tell.
After 40 years, Apple (AAPL) is finally added into the Dow Jones Industrial Average, a nearly 120-year-old index. Getting booted out is AT&T (T), a telecommunication company based in Dallas, Taxas. So, one might ask why did it take the index editors a long time to include Apple, a company of $740 billion market capitalisation?
Barry Ritholtz posted an interest working paper today. What I found in the summary is quite interesting:
We find that HFT order flow is more correlated over time than that of the investment banks, both within and across stocks. This means that HFT firms tend more than their peer investment banks to buy or sell aggressively the same stock at the same time. Also, a typical HFT firm tends to simultaneously aggressively buy and sell multiple stocks at the same time to a larger extent than a typical investment bank.
What is a possible impact in term of market efficiency?
We find that instances of correlated trading by HFT firms are associated with a permanent price impact whereas correlated trading by investment banks is associated with only a temporary price impact. We interpret this as evidence that HFT correlated trading is information-based; in other words, HFT firms appear to be reacting simultaneously and quickly to new information as it arrives at the market place, which makes prices more efficient. This suggests that correlated trading by HFT firms does not appear to contribute to undue price pressure and price dislocations on a systematic basis in the UK equity market.
Thara – Quite an interesting defence of HFT. As the authors noted, this paper does not address the issue of HFT activities during the period of high stress such as the Flash Crash on May 6, 2010. What they show is that HFT firm can be quite effective in removing any price disparities.
It is said that if you know your enemies and know yourself, you will not be imperil in a hundred battles… Sun Tzu
Know your enemies. For many investment funds, S&P 500 index is the most popular choice, even though it may not be the most appropriate choice of benchmarks. Over the last 20 years, S&P 500 outperformed average investors by more than 6%. Concretely, by investing in S&P 500 index over 20 years, one should expect a return of 3.2 times the return you would have achieved as an average investor. And that period includes two major recessions and many crashes around the world!
FT article: Bonds: Anatomy of a market meltdown
Is the bond market becoming increasingly volatile? If so, what are ramifications on your portfolio/superannuation with large bond holding. It seems nothing in the financial world is as safe as people tend to think.
Bob Farrell’s rule #9: When all the experts and forecasts agree, something else is going to happen.
Reading an article like this reminds me of the work by psychologist Philip Tetlock who studied expert predictions in areas such as economics and politics. What he found was truly shocking. They are on average only slightly better at predicting than random guessings, and are worse than basic extrapolations.
One of the most powerful ideas in statistics is the concept of regression toward the mean, first observed by Sir Francis Galton during the late 19th century. It is often called mean reversion in finance. Loosely speaking, there is a tendency for an asset that performed better than average in the previous time period to perform closer toward the average in the next time period.