4 ms·

The issue is that resources are being spent not to create value, but merely to ensure that HFT #1 captures it rather than HFT #2. It's a lot like wearing a suit

The issue is that resources are being spent not to create value, but merely to ensure that HFT #1 captures it rather than HFT #2. It's a lot like wearing a suit or going to college - it doesn't create value, but it ensures that applicant #1 gets a job over applicant #2. Unlike normal market competition, this one actually is a zero sum game.

brianwawok 12y ago
You don't think college education has impacted the world at all? Its literally just a resume checkbox?
- yummyfajitas 12y ago
  Mostly, yes. There are unusual cases like medicine and some engineering, but for the most part it is just a resume checkbox. Evidence in favor of this: the sheepskin effect is huge. http://econlog.econlib.org/archives/2013/06/baaaa_tremble_b.html http://econlog.econlib.org/archives/2013/06/baaaa_tremble_b.... http://econlog.econlib.org/archives/2013/02/sheepskin_effec.html http://econlog.econlib.org/archives/2013/02/sheepskin_effec.... So is ability bias: http://econlog.econlib.org/archives/2012/01/correcting_for.html http://econlog.econlib.org/archives/2012/01/correcting_for.h... And as a thought experiment, ask yourself which of the following would have had more of an effect on your life. Suppose you failed your humanities classes (assuming you are an engineer/CS and work as such). Would your life have been significantly different than if you forgot what you learned? How about if you cheated and passed? Mine certainly would be. In principle, wearing a suit also has a small positive effect. It arouses some women. But in general it's mostly wasteful signalling.
  - swatow 12y ago
    The sheepskin effect doesn't directly measure the effect of having a degree vs having exactly the same experience/education but no degree. This is because the person who gets the degree after 4 years might on average have worked a lot harder, and learned a lot more than the person who studies for 4 years but doesn't get the degree.
minimax 12y ago
The faster different markets come to agree on a price for similar instruments, the more efficient the markets are. The profit opportunity for the fastest arbitrageur drives competing arbitrageurs to compete. Ergo arbitrageurs are working with all of their skill and ability to make sure that markets are as efficient as possible. Now you have a global marketplace where investors have a pretty good idea that their local markets have reasonable prices. The system works for investors and arbitrageurs (the good ones, anyways) alike. What's wrong with that?
- yummyfajitas 12y ago
  I wasn't arguing against arbitrage. I was arguing that investors don't care if HFT #1 arbitrages at 12:00:032 or HFT #2 arbitrages at 12:00:074.

brianwawok 12y ago

You don't think college education has impacted the world at all? Its literally just a resume checkbox?

yummyfajitas 12y ago
Mostly, yes. There are unusual cases like medicine and some engineering, but for the most part it is just a resume checkbox. Evidence in favor of this: the sheepskin effect is huge. http://econlog.econlib.org/archives/2013/06/baaaa_tremble_b.html http://econlog.econlib.org/archives/2013/06/baaaa_tremble_b.... http://econlog.econlib.org/archives/2013/02/sheepskin_effec.html http://econlog.econlib.org/archives/2013/02/sheepskin_effec.... So is ability bias: http://econlog.econlib.org/archives/2012/01/correcting_for.html http://econlog.econlib.org/archives/2012/01/correcting_for.h... And as a thought experiment, ask yourself which of the following would have had more of an effect on your life. Suppose you failed your humanities classes (assuming you are an engineer/CS and work as such). Would your life have been significantly different than if you forgot what you learned? How about if you cheated and passed? Mine certainly would be. In principle, wearing a suit also has a small positive effect. It arouses some women. But in general it's mostly wasteful signalling.
- swatow 12y ago
  The sheepskin effect doesn't directly measure the effect of having a degree vs having exactly the same experience/education but no degree. This is because the person who gets the degree after 4 years might on average have worked a lot harder, and learned a lot more than the person who studies for 4 years but doesn't get the degree.

minimax 12y ago

The faster different markets come to agree on a price for similar instruments, the more efficient the markets are. The profit opportunity for the fastest arbitrageur drives competing arbitrageurs to compete. Ergo arbitrageurs are working with all of their skill and ability to make sure that markets are as efficient as possible. Now you have a global marketplace where investors have a pretty good idea that their local markets have reasonable prices. The system works for investors and arbitrageurs (the good ones, anyways) alike. What's wrong with that?

yummyfajitas 12y ago
I wasn't arguing against arbitrage. I was arguing that investors don't care if HFT #1 arbitrages at 12:00:032 or HFT #2 arbitrages at 12:00:074.