Nicholas Coffin – Sound Economics

Recent Thoughts on High Frequency Trading

Posted on November 13, 2013 by Nicholas Coffin — No Comments ↓

In 2010, the DOW Jones industrial average took a sharp dive in what is referred to as the “flash crash”. In a matter of minutes, the DOW Jones dropped by about 600 points. High Frequency Trading seems to be one problem that exacerbated the sudden price swings. But what is High Frequency Trading? As pointed out in Jonathan A. Brogaard’s paper, it doesn’t exactly have one: “Even the Securities and Exchange recognizes this and says that high frequency trading ‘does not have a settled deﬁnition and may encompass a variety of strategies in addition to passive market making’”. Essentially, though, it Continue reading Recent Thoughts on High Frequency Trading→

A Possible Improvement on the Efficient Market Hypothesis

Posted on November 6, 2013 by Nicholas Coffin — No Comments ↓

This year Eugene Fama won the nobel prize in Economics for his work on the Efficient Market Hypothesis (EMH). The idea behind his work is that it is impossible to “beat” the market, because all information about a given stock is available to everyone. That is, the EMH assumes that a stock valued at $60 is in fact worth $60: it is impossible to purchase an undervalued stock. The only way one could potentially make higher returns than the average, then, is to engage in riskier trading where bigger payoffs are possible. Investopedia offers a neat little video overview of Continue reading A Possible Improvement on the Efficient Market Hypothesis→