Posts Tagged ‘Algorithmic trading’
Oddities 2

Snippits from around the web:

Psychologists fear US manual will widen mental illness diagnosis: Hundreds of thousands of people will be labelled mentally ill because of behaviour most people would consider normal, if a new edition of what has been termed the psychiatrists’ diagnostic bible goes ahead, experts are warning.

Next thing you know they will be sending the mentally ill to re-education camps.

Study: Distrust of Government a Mental Disorder: A study in the Journal of Clinical Psychiatry has concluded that distrust of the government is a treatable mental disorder. Known as “AGP” or “anti-government phobia,” the study claims: “…that unfounded fear of government is a recognizable mental illness, closely related to paranoid schizophrenia. Anti-Government Phobia (AGP) differs from most mental illnesses, however, in that it is highly infectious and has an acute onset. Symptoms include extreme suspiciousness, conspiracy-mongering, delusional thought patterns, staunch ‘us against them’ mentality, withdrawal from reality, and often religious fanaticism”

Ultrafast Trades Trigger Black Swan Events Every Day, Say Econophysicists:  The US financial markets have suffered over 18,000 extreme price changes caused by ultrafast trading, according to a new study of market data between 2006 and 2011. We posted on machine trading here.

A Day of Intense Force-on-Force Handgun Training: Statistically rare but devastating, home invasions are the kind of low-probability, high-consequence nightmare that is difficult to guard against without seeming and feeling like a hopelessly paranoid person. But that doesn’t mean you shouldn’t be prepared. New Jersey—based Gun For Hire, which provides tactical training for law enforcement and civilians, teaches that the best way to stop a home invasion is one step at a time. It could help keep you out of a cemetery or jail, prticularly if you have a gun.

ABC accuracy: Some entertaining exaggeration and misrepresentation from photoshoppers who’ve been having fun with Julia Gillard’s Australia Day rescue.

The Himalayas and nearby peaks have lost no ice in past 10 years, study show: The discovery has stunned scientists, who had believed that around 50bn tonnes of meltwater were being shed each year and not being replaced by new snowfall. The study is the first to survey all the world’s icecaps and glaciers and was made possible by the use of satellite data.

 

 

 
Amazon’s $23 million book on flies

We have previously commented on Machines trading with machines to the enrichment of all. It really raises the question about value. I am not just talking about the more obvious effects of central bank money printing. We have commented on these already:

Understanding reality

Who’d have thought that low interest rates would hurt self-funded retirees and other savers? That flooding the system with cheap money would push up the price of things money can buy, like food and other commodities? That these rising prices would feed into the price of other goods, undermining workers incomes. Not to mention the effects of ever increasing government debt. Debts governments will never pay back with coin of equal value. This undermines the currency, increasing import prices and further impoverishing workers, retirees and other savers.

But of what market prices signify in a world of quantitative easing and machines trading with machines. Michael Eisen’s post on Amazon’s $23 million book tells part of the story.

When going to sell a reference text on flies Michael noticed that two of the copies for sale were priced at over a million dollars. By following the price over several days he worked out that one of the sellers was using an algorithm to price its books at slightly less than the other. While the other bookseller was selling its book for slightly more.The two machines were bidding the price of the book up.

Amazon’s $23,698,655.93 book about flies

Amazon retailers are increasingly using algorithmic pricing (something Amazon itself does on a large scale), with a number of companies offering pricing algorithms/services to retailers… The behavior of profnath is easy to deconstruct. They presumably have a new copy of the book, and want to make sure theirs is the lowest priced – but only by a tiny bit ($9.98 compared to $10.00). Why though would bordeebook want to make sure theirs is always more expensive? Since the prices of all the sellers are posted, this would seem to guarantee they would get no sales. But maybe this isn’t right – they have a huge volume of positive feedback – far more than most others. And some buyers might choose to pay a few extra dollars for the level of confidence in the transaction this might impart. Nonetheless this seems like a fairly risky thing to rely on – most people probably don’t behave that way – and meanwhile you’ve got a book sitting on the shelf collecting dust. Unless, of course, you don’t actually have the book….

My preferred explanation for bordeebook’s pricing is that they do not actually possess the book. Rather, they noticed that someone else listed a copy for sale, and so they put it up as well – relying on their better feedback record to attract buyers. But, of course, if someone actually orders the book, they have to get it – so they have to set their price significantly higher – say 1.27059 times higher – than the price they’d have to pay to get the book elsewhere.

Of course there was no sale in this instance. But in a world of QE with unprecedented leverage, who knows what is going on? The volume of each trade need not be large. There are no shortage of financial institutions keen to keep up the apparent price of assorted securities. Just idle speculation you understand.

But when prices jump around in response to central bank stimulus measures, it’s hard to believe they are being priced based on the expected future profit stream of the underlying enterprise. I don’t see how this can end well.