Adapted from “Real-Time Risk: What Investors Should Know About Fintech, High-Frequency Trading and Flash Crashes” (with Steve Krawciw, Wiley, 2017) Big data is all the rage, but not without pitfalls. In fact, data analysis is subject to risks that may lead to poor inferences and bad decisions that follow. The process of analyzing data, regardless of complexity, can go off the rails on several fronts: A small data sample may pick up a pattern that does not recur on a sufficiently long timeline, misleading the researchers of the pattern’s power and predictability. Oversampling of data may occur when researchers torture the same sample of dataRead More →

An Analysis of Institutional Activity in October 2016 Adapted from Real-Time Risk: What Investors Should Know About FinTech, High-Frequency Trading and Flash Crashes (forthcoming, Wiley, NJ). Pre-order on Amazon.com. “Money talks, bull*%$# walks”, says a classic Wall Street proverb. The expression has a lot of merit: nothing reflects one’s beliefs more than a financial bet on the markets. The larger is the bet, the stronger is the belief. AbleMarkets research indicates that institutional money sold off when negative news affected Donald Trump in October 2016, but when Hillary Clinton’s negative news emerged later in the same month, there was very little reaction from institutional money.Read More →

Minimizing volatility is important to investment managers focused on capital preservation. After all, lower volatility helps protect capital and improve the key portfolio performance metric, the Sharpe Ratio, which is equal to the average annualized return divided by annualized volatility. An acceptable Sharpe Ratio for a portfolio starts in the 1.8 range. Some high-frequency trading funds produce Sharpe as high as 20. Even very small positive returns can produce large Sharpe ratios that attract investors, but only if the volatility of the portfolio is tiny. Minimizing volatility is a challenging task. In a nutshell, to minimize volatility, one needs to: 1. Identify the conditions thatRead More →

An interview with Prof. Marco Avellaneda, Professor of Mathematical Finance at New York University Courant Institute of Mathematical Sciences, as told to Irene Aldridge. With 2016 registering levels of volatility in the U.S. markets not seen for a long period of time, we sat down with the volatility expert, Prof. Marco Avellaneda of NYU Courant Institute for Mathematical Sciences to discuss what is underpinning developments in the markets. Prof. Marco Avellaneda is an internationally recognized figure in the field of computational volatility modeling. Some of his latest research will be on display at the Big Data Finance Conference to take place at New York UniversityRead More →

Once upon a time, or, more precisely, just some 20 years ago, “data” was a term reserved for magnetic tapes and numerous governance committees, engaged in weekly discussions on the best ways to name data fields in order to accommodate the universe of financial products. Fast forward to today, and, surprise, many financial firms still engage in the same practices. Extensive data governance committees spar over what is the optimal way to write out a name of a listed option and how that should differ from the requirements of a custom “over-the-counter” derivative. Much of the latest CFTC Technology Advisory Committee (TAC) discussion focused onRead More →

Picture this: you can protect your investments against the aggressive high-frequency trading (HFT) right in your portfolio. “What?” you may ask. With the latest technology from AbleMarkets, now available on Quandl, hedging aggressive HFT is no longer just wishful thinking, but a reality. How is hedging aggressive HFT possible? First, to hedge aggressive HFT exposure, one needs to know what that exposure is. AbleMarkets aggressive HFT Index summarizes the daily participation of aggressive HFT as a percentage of the total daily volume traded in 90% of the active U.S. stocks (those comprising the Russell 3000 index). Using proprietary technology, now nearly 10 years in theRead More →

FinTech companies are changing business as usual for many established financial services companies. Companies like Money.Net are threatening to undermine the decades-long dominance of Bloomberg. Online lending platforms are coming out of the woodwork to directly compete with 100-year old banks. Money transfer firms are taking on established wire operations. All sorts of traditional financial intermediation, trading and even research are threatened by technology upstarts, with companies like Virtu electronically making markets and Kensho aiming to replace entire financial research departments with low-maintenance servers. There is no doubt that such financial disruption is driven by the technology: automation, often prohibitively expensive some thirty years ago,Read More →

The first iPhone was launched on June 29, 2007, and the world has never been the same since. The speed and convenience with which we now communicate created the new levels of urgency, including the urgency to understand and participate in further unbridled innovation. Since the launch of the iPhone, many companies have adopted the so-called Digital One company strategy with the idea to integrate social media, mobile technology, fast analytics and cloud data storage. Social media alone creates change and not just because of all the new tools connecting billions of individuals worldwide. People use social networks to gain immediate access to information thatRead More →

JP Morgan’s announcement last week “to pull the plug” on all of their thousands and thousands of Bloomberg terminals is last week’s leading example of the sweeping disruption facing investment managers from innovation (the contract value exceeding tens of million U.S. dollars each month). Many still struggle to wrap their head around the situation with social media platforms like LinkedIn buzzing with discussions about whether pulling the plug on Bloomberg is feasible or advisable. Yet, here is fact: while Bloomberg rested on its laurels and celebrated its founder’s New York mayoralty, the competition was not sleeping, but working hard. And now, the competition is soRead More →