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I'm more than a little surprised that Haas would publish an article that seems to indicate a complete lack of understanding of the purpose of the markets. Bett

I'm more than a little surprised that Haas would publish an article that seems to indicate a complete lack of understanding of the purpose of the markets. Better data yields more efficient markets which is what we actually want. “Technology was supposed to level the playing field, but what I see is the fence separating sophisticated and unsophisticated investors growing higher,” says Patatoukas As if that's a bad thing or a surprise to anyone...

JackFr 7y ago
Indeed. The stock market isn't a game where one person's win is another's loss. The price is an information conduit which signals where the economy should allocate capital.
- ksdale 7y ago
  Both of these things can be true. Every transaction certainly provides us with information, but also, if two people trade based on competing beliefs about the price, one of them is wrong. As for it being a game, well, when dollars are used to purchase stocks, they almost never go into the coffers of the company whose stock it is. They go into the pockets of someone else who is also trading stocks. As you said, it's a signal about where the economy should allocate capital, but to me it seems to be far closer to a game than to an actual useful allocation of that capital.
  - ttobbaybbob 7y ago
    The stock market is the frontend of the whole system. Companies can issue stock to raise money to fund operations, compensate employees, etc. Companies can also use their stock as collateral to borrow money. The higher the stock price the lower the effective cost raising money. By being correct about a stock in a trade you end up being rewarded for decreasing the cost of capital of companies that do the most with it.
    - ksdale 7y ago
      I understand how all that works, but the reality is that the number of transactions that actually involve a company giving someone shares in exchange for cash is vanishingly small compared to the total number of stock trades that happen. Some quick Googling indicates that in the first quarter of 2019, startups raised about $30b. Also according to some quick Googling, in 2013, the NYSE did about $170b per DAY of trading. Obviously that $30b number isn't close to all the capital raised by companies in that time period, but neither is the NYSE the only place where stocks are trading hands. The vast, vast majority of transactions do not involve a company raising money. And just a minor quibble, a more accurate stock price doesn't always lower the cost to a particular company of raising money. It makes the market more efficient over all, for sure, but often companies would prefer a less accurate (ie, higher) stock price for the purposes of raising money. Needless to say, I'm not convinced that this kind of volume is necessary to get most of the benefit of the stock market as a price discovery mechanism. I'm not saying anything needs to change, I'm just not sure it's such a huge public good.
jjwhitaker 7y ago
I think the author's dilemma is the data is proprietary and won't be open or released unless it benefits the funds position. Fund managers will act on their information to profit before the market reacts or release the data after shoring their position and portfolio. If the data was open, analysis checked, and the information confirmed accurate then it probably would lead to a more efficient or at least accurate market valuation. But if it sits in a safe until no longer useful or released by someone else then we won't know. I wonder if the author is thinking of groups that suspected the 2008 crash but either didn't raise the alarm and made bets on the outcome or weren't heard in the commotion. Any proprietary information they might have had could have alerted the public or something but there's always noise or incorrect predictions about the market and hindsight is 20/20. If their worldview is that private groups controlling information for private gain is bad, well that's already going on so this is just an extension of that. I'm sure most funds have groups looking into data collection on top of modeling market results based on various inputs the data suggests. I'm sure most funds have some amount of proprietary data or algorithms to run against it, even if the info overlaps or they sourced from the same information like publicly available government released satellite photos. I'm sure that the market (mostly computer programatically trading) reacts fairly quickly to big players making less than subtle moves. There may be some method to deciding how far to go with certain information to not tip your hand or reveal information by inference. It's how the whole thing works already, and dropping into a mutual fund seems the best way to take advantage with minimal risk.
- mediaman 7y ago
  If the information gathered is required to be made public, they won't go gather it. It's simple incentives. There is no market regulatory philosophy that says "thou shalt not profit from working harder or smarter." Rather, working harder/smarter is encouraged, because when information is discovered, the new owner of that information acts on it in such a way that it creates price pressure in the market to push that security to be more accurately priced. This is an unalloyed good. Yes, the people who get the information may profit from it, in a similar way any capitalist profits by reacting to price signals. There is no guarantee that all information should be available to everyone. If your information gathering is better and more determined, and your analysis superior, you may profit more than those who do not put in the effort.
atemerev 7y ago
Technology does level the playing field. As a software engineer, I can get access to realtime institutional-grade data and write strategies that were impossible even a few years before. Not even speaking about crypto exchanges, where all data is public.
- stevenhuang 7y ago
  > As a software engineer, I can get access to realtime institutional-grade data One can get API access just like that? If so then I'm interested, might be fun to dabble with--can you name some of these providers?
  - atemerev 7y ago
    IEX API, for example.

JackFr 7y ago

Indeed. The stock market isn't a game where one person's win is another's loss. The price is an information conduit which signals where the economy should allocate capital.

ksdale 7y ago
Both of these things can be true. Every transaction certainly provides us with information, but also, if two people trade based on competing beliefs about the price, one of them is wrong. As for it being a game, well, when dollars are used to purchase stocks, they almost never go into the coffers of the company whose stock it is. They go into the pockets of someone else who is also trading stocks. As you said, it's a signal about where the economy should allocate capital, but to me it seems to be far closer to a game than to an actual useful allocation of that capital.
- ttobbaybbob 7y ago
  The stock market is the frontend of the whole system. Companies can issue stock to raise money to fund operations, compensate employees, etc. Companies can also use their stock as collateral to borrow money. The higher the stock price the lower the effective cost raising money. By being correct about a stock in a trade you end up being rewarded for decreasing the cost of capital of companies that do the most with it.
  - ksdale 7y ago
    I understand how all that works, but the reality is that the number of transactions that actually involve a company giving someone shares in exchange for cash is vanishingly small compared to the total number of stock trades that happen. Some quick Googling indicates that in the first quarter of 2019, startups raised about $30b. Also according to some quick Googling, in 2013, the NYSE did about $170b per DAY of trading. Obviously that $30b number isn't close to all the capital raised by companies in that time period, but neither is the NYSE the only place where stocks are trading hands. The vast, vast majority of transactions do not involve a company raising money. And just a minor quibble, a more accurate stock price doesn't always lower the cost to a particular company of raising money. It makes the market more efficient over all, for sure, but often companies would prefer a less accurate (ie, higher) stock price for the purposes of raising money. Needless to say, I'm not convinced that this kind of volume is necessary to get most of the benefit of the stock market as a price discovery mechanism. I'm not saying anything needs to change, I'm just not sure it's such a huge public good.

jjwhitaker 7y ago

I think the author's dilemma is the data is proprietary and won't be open or released unless it benefits the funds position. Fund managers will act on their information to profit before the market reacts or release the data after shoring their position and portfolio. If the data was open, analysis checked, and the information confirmed accurate then it probably would lead to a more efficient or at least accurate market valuation. But if it sits in a safe until no longer useful or released by someone else then we won't know. I wonder if the author is thinking of groups that suspected the 2008 crash but either didn't raise the alarm and made bets on the outcome or weren't heard in the commotion. Any proprietary information they might have had could have alerted the public or something but there's always noise or incorrect predictions about the market and hindsight is 20/20. If their worldview is that private groups controlling information for private gain is bad, well that's already going on so this is just an extension of that. I'm sure most funds have groups looking into data collection on top of modeling market results based on various inputs the data suggests. I'm sure most funds have some amount of proprietary data or algorithms to run against it, even if the info overlaps or they sourced from the same information like publicly available government released satellite photos. I'm sure that the market (mostly computer programatically trading) reacts fairly quickly to big players making less than subtle moves. There may be some method to deciding how far to go with certain information to not tip your hand or reveal information by inference. It's how the whole thing works already, and dropping into a mutual fund seems the best way to take advantage with minimal risk.

mediaman 7y ago
If the information gathered is required to be made public, they won't go gather it. It's simple incentives. There is no market regulatory philosophy that says "thou shalt not profit from working harder or smarter." Rather, working harder/smarter is encouraged, because when information is discovered, the new owner of that information acts on it in such a way that it creates price pressure in the market to push that security to be more accurately priced. This is an unalloyed good. Yes, the people who get the information may profit from it, in a similar way any capitalist profits by reacting to price signals. There is no guarantee that all information should be available to everyone. If your information gathering is better and more determined, and your analysis superior, you may profit more than those who do not put in the effort.

atemerev 7y ago

Technology does level the playing field. As a software engineer, I can get access to realtime institutional-grade data and write strategies that were impossible even a few years before. Not even speaking about crypto exchanges, where all data is public.

stevenhuang 7y ago
> As a software engineer, I can get access to realtime institutional-grade data One can get API access just like that? If so then I'm interested, might be fun to dabble with--can you name some of these providers?
- atemerev 7y ago
  IEX API, for example.