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Collateral Crises

Abstract

Short-term collateralized debt, private money, is efficient if agents are willing to lend without producing costly information about the collateral backing the debt. When the economy relies on such informationally-insensitive debt, firms with low quality collateral can borrow, generating a credit boom and an increase in output. Financial fragility builds up over time as information about counterparties decays. A crisis occurs when a small shock causes agents to suddenly have incentives to produce information, leading to a decline in output. A social planner would produce more information than private agents, but would not always want to eliminate fragility.

Link al Paper

The Psy-Fi Blog tiene un interesante post sobre lo que significa “ruido” en el mercado financiero y su impacto en el precio. Más haya de como esta estructurado el post, lo mejor son los links a los distintos papers que forman el argumento del articulo (Especialmente el de Black).

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Normally you’d expect the obvious information reflected in public sources such as annual reports and regulatory news filings to be reflected in stock prices. What Black’s model of noise trading suggests is that this isn’t always the case, because of the noise injected by information-less traders. Which would explain why fundamental analysis can reveal what technical analysis can’t. Of course, fundamental analysts can be idiots too, but they’re not always trading on noise.

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Event Driven Trading and the ‘New News’

Abstract: 
There are two information revolutions underway in trading and investing. Most of the headlines focus on structured quantitative market information at ever higher frequencies. The other technology revolution in trading and investing is driven by qualitative, textual and relationship information. The IBM computer Watson’s overwhelming Jeopardy victory demonstrated how good machines can get at this. News analysis is a focus of language technology in finance. This paper includes event studies and US portfolio simulation results are shown for “pure news” signals applied over 2006-2009, and a true out of sample period in 2010, which showed alpha in excess of 10%/year. Other applications of automated qualitative analysis for information-driven social media client relations are described.

Link al Paper

Decoding Inside Information

Abstract

Exploiting the fact that insiders trade for a variety of reasons, we show that there is  predictable, identifiable “routine” insider trading that is not informative for the future  of firms. A portfolio strategy that focuses solely on the remaining “opportunistic”  traders yields value-weighted abnormal returns of 82 basis points per month, while  abnormal returns associated with routine traders are essentially zero. The most informed opportunistic traders are local, non-executive insiders from geographically concentrated, poorly governed firms. Opportunistic traders are significantly more likely to have SEC enforcement action taken against them, and reduce trading following waves of SEC insider trading enforcement.

Link al Paper

…Ese es nombre de un articulo escrito por Donald MacKenzie. En el cual explora la transición hacia el trading electronico, algoritmico y de alta frecuencia. Explica muy detalladamente el Flash Crash. Y referencia varios algoritmos utilizados para hacer hacer plata (VWAP, spoofing). El unico pecado del texto: su longitud.

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The trigger was indeed an algorithm, but not one of the sophisticated ultra-fast high-frequency trading programs. It was a simple ‘volume participation’ algorithm, and while the official investigation does not name the firm that deployed it, market participants seem convinced that it was the Kansas City investment managers Waddell & Reed. The firm’s goal was to protect the value of a large position in the stock market against further declines, and it did this by programming the algorithm to sell 75,000 index future contracts. (These contracts track the S&P 500 stock-market index, and each contract was equivalent to shares worth a total of around $55,000. The seller of index futures makes money if the underlying index falls; the buyer gains if it rises.) The volume participation algorithm calculated the number of index futures contracts that had been traded over the previous minute, sold 9 per cent of that volume, and kept going until the full 75,000 had been sold. The total sell order, worth around $4.1 billion, was unusually large, though not unprecedented: the SEC/CFTC investigators found two efforts in the previous year to sell the same or larger quantities of futures in a single day. But the pace of the sales on 6 May was very fast.

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Por ultimo, en el escrito se habla de un paper de Hasbrouck y Saar, creo que es este.

Parece ser lo que proponen -en distinta prosa- Shiller y de Soto para prevenir futuras debacles económicas. O por lo menos, suavizarlas.

Posturas como estas alimentan el debate sobre la economía de la información.

Vale rescatar frases como tales:

“TODAY, our prosperity depends on finance, and on its associated disciplines of accounting and macroeconomics.” (Shiller)

“If we can agree that the recession wasn’t about bubbles but about the organization of knowledge, we can move on to restoring the systems that allowed the global economy to expand more in the last 60 years than in the previous 2,000” (de Soto)