Also: Institutional investors seek safety in recession (counter-cyclical) stocks, including real estate, oil, gas, and low-budget furniture and appliance rental companies.   By Irene Aldridge May 6, 2022 According to Garthwaite et al. (2005), a good model accurately captures the distribution of the investors’ knowledge and beliefs, regardless of how good that knowledge actually is. Thus, if selected institutional investors believe that the markets are about to go up and reflect that belief in their trades, but the markets end up going down, the knowledge and belief elicitation model still works perfectly as it accurately captures the investors’ beliefs.  Of course, institutional investors, by the sheerRead More →

By Irene Aldridge Managing Director, Head of Research, Yesterday, May 4, 2022, the markets eagerly awaited and then vibrantly celebrated the U.S. Federal Reserve decision. The Fed raised the rates by 0.5%, the largest raise since 2000, and the Dow Jones index went up by 2.97% from 11:30 AM to 4 PM. The S&P 500 ETF NYSE:SPY alone went from $414.29 at 12 PM Noon yesterday to $429.06 at the 4 PM close, registering a 3.56% gain.   Figure 1. AbleMarkets tweet from May 4, 2022, 11:56 AM. At AbleMarkets, however, we saw a less exuberant picture. As we posted on our Twitter around 11:56Read More →

By Irene Aldridge Financial technology is moving in leaps and bounds. An enormous amount of development comes from crypto, where computer scientists, often unaware of established economic theories, progress with the design and development of super-optimal market-making, settlement and reconciliation systems. These systems often leave even the most sophisticated equities and commodities platforms in the dust.  Indeed, the spillover has been quietly revolutionizing the financial industry. Take, for example, the latest, yet unpublished, research of Prof. Agostino Capponi of Columbia University Industrial Engineering and Operations Research (IEOR) department. It focuses on market microstructure and intertemporal dynamics of market-making in the crypto and, more broadly, DecentralizedRead More →

Irene Aldridge has co-authored research on interpreting artificial intelligence and building trading strategies from data. A draft of the working paper can be found on SSRN. Title: What Data Series Matter? Explaining key trends and factors generated by Artificial Intelligence Abstract: We show a simple way to let the data speak for themselves. Specifically, we show how a large mixed bag of data, potentially embedded with missing data points and collinearities, and therefore unsuitable for traditional econometric analysis, can be useful in building fast and meaningful big data and artificial intelligence analyses and predictions. What’s more, our technique helps the results of the analyses toRead More →