Attack of the Machines – Is your stockbroker a robot? opens with an observation my brother pointed out to me years ago:
Every day, hundreds of reporters from CNBC, Bloomberg, Dow Jones, and other outlets concoct a story about the stock market. From the chaos of the New York Stock Exchange, they discern rational human behavior to explain why the S&P 500 rose precisely 11.46 points today.Tech stocks up? Why, it’s because Intel’s CEO made positive comments. Oil stocks down? A respected analyst issued a bearish forecast. When stocks fall across the board, it is frequently attributed to investors ‘taking profits.’ (Strangely, in the zero-sum game of investing, stocks never seem to rise due to investors ‘taking losses.’)
Choose a phenomenon that’s supposed to affect the market (either up or down), then choose either “because of” or “despite” to describe the market’s behavior that day.
The article’s focus is on how human decisions are being slowly replaced by computer-based decision-making, but those narrative rationalizations about the market are meaningless even if human’s are in charge; the market’s a complex system with many, many actors.
Anyway, program trading has increased in volume over the years (as you’d have to expect):
According to the New York Stock Exchange, program trading for all of 2004 was a record 50.6 percent of volume, up sharply from 37.5 percent in 2003.
This all sounds vaguely familiar…
Then there are the trading geeks, guys with black boxes in Lower Manhattan and Greenwich, Conn., who have written ultra-secret algorithms that dictate the purchase or sale of stocks whenever prices hit certain tripwires. In the past few years, quantitatively driven hedge funds have proliferated. And every day, the code on which they rely can trigger a buy and a sell on the same groups of stocks?sometimes several times a day. Thanks to program trading, a relatively small quantitative firm with only several hundred million dollars in capital can nonetheless account for a big chunk of the NYSE’s daily volume on a given day.