3 ms·

Does the intrinsic value of a company change 29 000 times per second ? is this signal or noise ? Trading once per day and randomizing the order of trades would

by Iv 15y ago

Does the intrinsic value of a company change 29 000 times per second ? is this signal or noise ? Trading once per day and randomizing the order of trades would work nicely I think. There was a recent very good example of this concerning Apple : When Steve Jobs died, they kept the information secret and agreed with the stock exchange to suspend trading for a day. The time for everyone to think about what it meant for the company instead of hysterically following a random trend. A big event, obviously changing the company's intrinsic value, was interpreted with a daily period. Everything I read about high frequency trading indicates that it is mainly noise. I mean, stock exchanges close at night and during week ends. There are 48 hours without quotations. How does one concile that with nano-second trading.

tedunangst 15y ago
If it's mainly noise, why do you care? What I find most amazing is that the stock market is relatively small, yet people have strong opinions about it while ignoring much larger markets. There's some adage about how if you can't measure it, it doesn't exist or something. If CNN doesn't run a ticker for some market, I guess it doesn't matter.
- prodigal_erik 15y ago
  I care if all my 401(k) alternatives are in markets being parasitized by HFTs who have learned to exploit execution flaws and attack the confidentiality of the order book. Less selfishly, I care if HFTs are diverting society's resources away from the effective producers the market exists to support.
  - anonymoushn 15y ago
    Less selfishly, I care if HFTs are diverting society's resources away from the effective producers the market exists to support. Unfortunately, there's gold in them there microseconds.
- Iv 15y ago
  For the same reason you minimize noise to prevent Larsen effects : It is noise that can have feedback effects.
fleitz 15y ago
The intrinsic value of a company is unknowable, the only thing we can know is the market value. For some companies I do think the value could change 29,000 times per second, if it didn't the stock simply wouldn't move . You can see this in the juniors where HFT is rare if non-existant. I do think that it's a good idea to have an exchange that doesn't allow HFT, or perhaps only allows trades every day, and for it to be able to compete with exchanges that do allow HFT. If this system is better then companies will list their stock on that exchange instead of exchanges that don't allow HFT. However, what I disagree with is the idea that people should be put in jail for trading stock too frequently.
pdovy 15y ago
As others have pointed out below, the value of the company may change at a fast rate, however that is far from the only reason that you might see many deals in a short period. One of the primary benefits that market makers (which are often HFT firms) provide is the efficient transfer of risk. That is to say, the value of the company may not change thousands of times a second, but the willingness of existing holders of that stock to continue to do so may change rapidly. Or similarly some participant may suddenly need a hedge and buy this stock because it has the correlation their looking for. This is all to say that there are valid reasons for buying and selling a stock that have no direct (but some indirect) relationship with the value of that company. This is not a game played by retail investors, but it's not just played by HFT firms either. Institutional investors (e.g., my 401k money) will also use financial products in this way. Or put a completely different way, I may sell my Apple shares because I need the cash back to help pay for a downpayment on my house. Did I sell those shares because I think the value of the company has suddenly changed? No. There are a myriad of reasons participants may move in and out of a position.

by Iv 15y ago

tedunangst 15y ago

If it's mainly noise, why do you care? What I find most amazing is that the stock market is relatively small, yet people have strong opinions about it while ignoring much larger markets. There's some adage about how if you can't measure it, it doesn't exist or something. If CNN doesn't run a ticker for some market, I guess it doesn't matter.

prodigal_erik 15y ago
I care if all my 401(k) alternatives are in markets being parasitized by HFTs who have learned to exploit execution flaws and attack the confidentiality of the order book. Less selfishly, I care if HFTs are diverting society's resources away from the effective producers the market exists to support.
- anonymoushn 15y ago
  Less selfishly, I care if HFTs are diverting society's resources away from the effective producers the market exists to support. Unfortunately, there's gold in them there microseconds.
Iv 15y ago
For the same reason you minimize noise to prevent Larsen effects : It is noise that can have feedback effects.

fleitz 15y ago

The intrinsic value of a company is unknowable, the only thing we can know is the market value. For some companies I do think the value could change 29,000 times per second, if it didn't the stock simply wouldn't move . You can see this in the juniors where HFT is rare if non-existant. I do think that it's a good idea to have an exchange that doesn't allow HFT, or perhaps only allows trades every day, and for it to be able to compete with exchanges that do allow HFT. If this system is better then companies will list their stock on that exchange instead of exchanges that don't allow HFT. However, what I disagree with is the idea that people should be put in jail for trading stock too frequently.

pdovy 15y ago

As others have pointed out below, the value of the company may change at a fast rate, however that is far from the only reason that you might see many deals in a short period. One of the primary benefits that market makers (which are often HFT firms) provide is the efficient transfer of risk. That is to say, the value of the company may not change thousands of times a second, but the willingness of existing holders of that stock to continue to do so may change rapidly. Or similarly some participant may suddenly need a hedge and buy this stock because it has the correlation their looking for. This is all to say that there are valid reasons for buying and selling a stock that have no direct (but some indirect) relationship with the value of that company. This is not a game played by retail investors, but it's not just played by HFT firms either. Institutional investors (e.g., my 401k money) will also use financial products in this way. Or put a completely different way, I may sell my Apple shares because I need the cash back to help pay for a downpayment on my house. Did I sell those shares because I think the value of the company has suddenly changed? No. There are a myriad of reasons participants may move in and out of a position.