Skip to main content

Unhelpful Information




Streetwise Professor, the blogging persona of Craig Pirrong, recently jumped into the fray regarding  high frequency trading. Find his comments here.


Unless you've been following the HFT debates carefully already, the opening grafs there might put you off. Pirrong is positioning himself relative to a range of other commenters, Stiglitz, Salmon, DeLong especially.


I'll cut to the chase for you. One of the issues created by the existence of HFT --and by the related fact that it is impossible for everybody to be equally fast or equally sophisticated in their algorithms, so there is an arm's race and a have/havenot split -- one of the issues is whether this circumstance discourages the gathering of information.


Joe Trader might well believe in making decisions the old-fashioned way -- studying up on the corporation issuing certain stocks and bonds, looking at such factors as the competitive pressure in that corporation's product lines, considering the ratio of book value to market cap --- and then buying or selling according to the data. BUT ... if Joe Trader is a havenot in high tech he may soon find that the haves can quickly game any decision he might make. The profit that should reward the diligent research goes to them in the end, not to him.


One reasonable line of thought, then, concludes that Joe Trader will be discouraged from doing the now-useless research, and the market as a whole becomes a less well-informed place.


Pirrong adds a new wrinkle here, though. He says that some of the information that Joe Trader might otherwise be busy gathering isn't socially useful anyway. "[M]any of the informed traders who HFT firms sniff out are producing information that does not improve any economic decision on any margin " As an example, "better information about an impending earnings report can be very profitable, but revelation of this information doesn't improve decision making."


Fascinating plot twist, no?
Labels:

Comments

Post a Comment

Popular posts from this blog

A Story About Coleridge

This is a quote from a memoir by Dorothy Wordsworth, reflecting on a trip she took with two famous poets, her brother, William Wordsworth, and their similarly gifted companion, Samuel Taylor Coleridge.   We sat upon a bench, placed for the sake of one of these views, whence we looked down upon the waterfall, and over the open country ... A lady and gentleman, more expeditious tourists than ourselves, came to the spot; they left us at the seat, and we found them again at another station above the Falls. Coleridge, who is always good-natured enough to enter into conversation with anybody whom he meets in his way, began to talk with the gentleman, who observed that it was a majestic waterfall. Coleridge was delighted with the accuracy of the epithet, particularly as he had been settling in his own mind the precise meaning of the words grand, majestic, sublime, etc., and had discussed the subject with William at some length the day before. “Yes, sir,” says Coleridge, “it is a maj...
10 comments
Read more

Searle: The Chinese Room

John Searle has become the object of accusations of improper conduct. These accusations even have some people in the world of academic philosophy saying that instructors in that world should try to avoid teaching Searle's views. That is an odd contention, and has given rise to heated exchanges in certain corners of the blogosphere.  At Leiter Reports, I encountered a comment from someone describing himself as "grad student drop out." GSDO said: " This is a side question (and not at all an attempt to answer the question BL posed): How important is John Searle's work? Are people still working on speech act theory or is that just another dead end in the history of 20th century philosophy? My impression is that his reputation is somewhat inflated from all of his speaking engagements and NYRoB reviews. The Chinese room argument is a classic, but is there much more to his work than that?" I took it upon myself to answer that on LR. But here I'll tak...
21 comments
Read more

The Lyrics of "Live Like You Were Dying"

Back in 2004 Tim McGraw recorded the song "Live Like You were Dying." As a way of marking the one-decade anniversary of this song, I'd like to admit that a couple of the lines have confused me for years. I could use your help understanding them. In the first couple of verses, the song seems easy to follow. Two men are talking, and one tells the other about his diagnosis. The doctors have (recently? or a long time ago and mistakenly? that isn't clear) given him the news that he would die soon. "I spent most of the next days/Looking at the X-rays." Then we get a couple of lines about a man crossing items off of his bucket list. "I went sky diving, I went rocky mountain climbing, I went two point seven seconds on a bull named Fu Man Chu." Then the speaker -- presumably still the old man -- shifts to the more characterological consequences of the news. As he was doing those things, he found he was loving deeper and speaking sweeter, and givin...
2 comments
Read more