3 ms·

A hedge fund that takes 0 risk and operates through statistical arbitrage or latency advantages is hard to link to capital raising. Liquidity is not a goal in i

A hedge fund that takes 0 risk and operates through statistical arbitrage or latency advantages is hard to link to capital raising. Liquidity is not a goal in itself the allocation of capital is. If exchanges operated on auctions at every say 15 minutes instead of streaming prices would that matter in the capital allocation process? The real way they make money is your bigger older investment companies get ripped off on trading and this feeds through to the smarter players.

darawk 7y ago
> A hedge fund that takes 0 risk and operates through statistical arbitrage or latency advantages is hard to link to capital raising. Liquidity is not a goal in itself the allocation of capital is. Yes, but let's say you are a venture capitalist. Ultimately, you want the company you allocate capital to to IPO, because the IPO is what allows you to recoup your investment later on. The more efficient the market is that your company IPOs into, the more directly your incentives are aligned with investing in good companies. That is why market efficiency, and its counterpart, liquidity, are important. > If exchanges operated on auctions at every say 15 minutes instead of streaming prices would that matter in the capital allocation process? No, that's a perfectly reasonable and good way to operate a market. It's called a "call market", and for most purposes it is in fact strictly better than a continuously trading market. Its primary downside is the lack of immediacy - you have to wait 15 minutes. Of course, you can make that window arbitrarily small, say, every minute. I'm mostly arguing that things like statistical arbitrage, which is what DE Shaw does, are necessary and important. And DE Shaw would continue to operate just fine in a call market. AFAIK they are not primarily HFTs.

3 ms·

A hedge fund that takes 0 risk and operates through statistical arbitrage or latency advantages is hard to link to capital raising. Liquidity is not a goal in i

by tnu_tau12 7y ago

darawk 7y ago
> A hedge fund that takes 0 risk and operates through statistical arbitrage or latency advantages is hard to link to capital raising. Liquidity is not a goal in itself the allocation of capital is. Yes, but let's say you are a venture capitalist. Ultimately, you want the company you allocate capital to to IPO, because the IPO is what allows you to recoup your investment later on. The more efficient the market is that your company IPOs into, the more directly your incentives are aligned with investing in good companies. That is why market efficiency, and its counterpart, liquidity, are important. > If exchanges operated on auctions at every say 15 minutes instead of streaming prices would that matter in the capital allocation process? No, that's a perfectly reasonable and good way to operate a market. It's called a "call market", and for most purposes it is in fact strictly better than a continuously trading market. Its primary downside is the lack of immediacy - you have to wait 15 minutes. Of course, you can make that window arbitrarily small, say, every minute. I'm mostly arguing that things like statistical arbitrage, which is what DE Shaw does, are necessary and important. And DE Shaw would continue to operate just fine in a call market. AFAIK they are not primarily HFTs.