Results for “high frequency” 121 found
Facts about livestock theft in Punjab, Pakistan
There is yet another paper on this topic, I know you are weary of it, but I remain glued to the screen, so here goes:
Stock theft is an endemic crime particularly affecting deep rural areas of Pakistan. Analysis of a series of cases was conducted to describe features of herds and farmers who have been the victims of cattle and/buffalo theft in various villages of Punjab in Pakistan during the year 2012. A structured interview was administered to a sample of fifty three affected farmers. The following were the important findings: i) incidents of theft were more amongst small scale farmers, ii) the rate of repeat victimization was high, iii) stealing was the most common modus operandi, iv) the majority of animals were adult, having high sale values, v) more cases occurred during nights with crescent moon, vi) only a proportion of victims stated to have the incident reported to the police, vii) many farmers had a history of making compensation agreements with thieves, viii) foot tracking failed in the majority of the cases, ix) all the respondents were willing to invest in radio frequency identification devices and advocated revision of existing laws. The study has implications for policy makers and proposes a relationship between crime science and veterinary medicine.
The link is here, and for the pointer I thank Ben Southwood. This is in fact a significant and understudied topic in development economics, namely small-scale predation in rural settings.
Not surprisingly, that piece appeared in the Berliner und Münchener tierärztliche Wochenschrift.
*Flash Boys*, the new Michael Lewis book
For all the criticism the book has received, I liked and enjoyed it. It illuminates a poorly understand segment of the financial world, namely high-frequency trading, and outlines some of the zero- and negative-sum games in that world. The stories and the writing are very good, as you might expect.
It is a mistake to take the book as a balanced or accurate net assessment of HFT, but reading through the text I never saw a passage where Lewis claimed to offer that. Maybe the real objections are to be lodged against the 60 Minutes coverage of the book (which I have not seen).
Why not read a fun book on a fun and understudied topic? Just don’t confuse the emotional tenor of the stories with a final and well-reasoned attitude toward the phenomenon more generally. Surely you are all able to draw that distinction. Right?
A study of limiting HFT
These advantages were demonstrated in a recent natural experiment set off by Canada’s stock market regulators. In April 2012 they limited the activity of high-frequency traders by increasing the fees on market messages sent by all broker-dealers, such as trades, order submissions and cancellations. This affected high-frequency traders the most, since they issue many more messages than other traders.
The effect, as measured by a group of Canadian academics, was swift and startling. The number of messages sent to the Toronto Stock Exchange dropped by 30 percent, and the bid-ask spread rose by 9 percent, an indicator of lower liquidity and higher transaction costs.
But the effects were not evenly distributed among investors. Retail investors, who tend to place more limit orders — i.e., orders to buy or sell stocks at fixed prices — experienced lower intraday returns. Institutional investors, who placed more market orders, buying and selling at whatever the market price happened to be, did better. In other words, the less high-frequency trading, the worse the small investors did.
…In a paper published last year, Terry Hendershott of Berkeley, Jonathan Brogaard of the University of Washington and Ryan Riordan of the University of Ontario Institute of Technology concluded that, “Over all, HFTs facilitate price efficiency by trading in the direction of permanent price changes and in the opposite direction of transitory price errors, both on average and on the highest volatility days.”
The pdf of the paper is here. Here is the conclusion of a Charles M. Jones survey paper on HFT (pdf):
Based on the vast majority of the empirical work to date, HFT and automated, competing markets improve market liquidity, reduce trading costs, and make stock prices more efficient. Better liquidity lowers the cost of equity capital for firms, which is an important positive for the real economy. Minor regulatory tweaks may be in order, but those formulating policy should be especially careful not to reverse the liquidity improvements of thelast twenty years.
Matt Levine and Felix Salmon on Michael Lewis and HFT
In my alternative Michael Lewis story, the smart young whippersnappers build high-frequency trading firms that undercut big banks’ gut-instinct-driven market making with tighter spreads and cheaper trading costs. Big HFTs like Knight/Getco and Virtu trade vast volumes of stock while still taking in much less money than the traditional market makers: $688 million and $623 million in 2013 market-making revenue, respectively, for Knight and Virtu, versus $2.6 billion in equities revenue for Goldman Sachs and $4.8 billion forJ.P. Morgan. Even RBC made 594 million Canadian dollars trading equities last year. The high-frequency traders make money more consistently than the old-school traders, but they also make less of it.
There is more here. Here is Felix Salmon on the book:
Similarly, Lewis goes to great lengths to elide the distinction between small investors and big investors. As a rule, small investors are helped by HFT: they get filled immediately, at NBBO. (NBBO is National Best Bid/Offer: basically, the very best price in the market.) It’s big investors who get hurt by HFT: because they need more stock than is immediately available, the algobots can try to front-run their trades. But Lewis plays the “all investors are small investors” card: if a hedge fund is running money on behalf of a pension fund, and the pension fund is looking after the money of middle-class individuals, then, mutatis mutandis, the hedge fund is basically just the little guy. Which is how David Einhorn ended up appearing on 60 Minutes playing the part of the put-upon small investor. Ha!
Lewis is also cavalier in his declaration that intermediation has never been as profitable as it is today, in the hands of HFT shops. He does say that the entire history of Wall Street is one of scandals, “linked together trunk to tail like circus elephants”, and nearly always involving front-running of some description. And he also mentions that while you used to be able to drive a truck through the bid-offer prices on stocks, pre-decimalization, nowadays prices are much, much tighter — with the result that trading is much, much less expensive than it used to be. Given all that, it stands to reason that even if the HFT shops are making good money, they’re still making less than the big broker-dealers used to make back in the day. But that’s not a calculation Lewis seems to have any interest in.
*Particle Fever*
That is the new science documentary about the Hadron Collider and the search for the Higgs particle, reviewed here. I enjoyed it very much, and it makes being a scientist seem glamorous, in the good sense of that concept. The visuals of what goes on at CERN are striking, all the more so for being juxtaposed against mooing Swiss cows. And reheating a super-cooled magnet, and removing some helium contamination, is not easy to do.
The scientists in this movie seem to think their success will be measured in binary up/down fashion, and yet so far the results are mixed and inconclusive, as if they had been doing macroeconomics.
During one early part of the movie, at a public meeting, a self-proclaimed economist stands up from the audience and asks what is the economic rationale for the project, in front of a group of people drawn mostly from the scientific community. The man presenting the project responds proudly that such a question does not really need to be answered, and his audience of scientists cheers. The film audience in Greenwich Village was emboldened by this retort and there was audible positive murmuring, and some apparent scorn for the economist.
I wonder how the same scene would play out if the question concerned high-frequency trading?
Unemployment benefits and Google job search
I had not known of this Scott R. Baker and Andrey Fradkin paper until recently, here is the abstract:
The large-scale unemployment caused by the Great Recession has necessitated unprecedented increases in the duration of unemployment insurance (UI). While it is clear that the weekly payments are beneficial to recipients, workers receiving benefits have less incentive to engage in job search and accept job offers. We construct a job search activity index based on Google data which provides the first high-frequency, state-specific measure of job search activity. We demonstrate the validity of our measure by benchmarking it against the American Time Use Survey and the comScore Web-User Panel, and also by showing that it varies with hypothesized drivers of search activity. We test for search activity responses to policy shifts and changes in the distribution of unemployment benefit duration. We find that search activity is greater when a claimant’s UI benefits near exhaustion. Furthermore, search activity responses to the passage of bills that increase unemployment benefits duration are negative but short-lived in most specifications. Using daily data, we estimate that an increase by 1% of the population of unemployed receiving additional benefits results in a decrease in aggregate search activity of 1.7% lasting only one week.
One way (not the only way) of reading these results is to wonder if some of the unemployed feel they ought to increase their shirking in response to an extension of benefits, but they actually don’t really want to do so. They shirk a bit more, for a short while, not to feel like fools, and then return either to active search or fruitless despondent search, as the case may be. For better or worse, habit dies hard.
For the pointer I thank John Horton.
Conor Sen, by the way, tells us that “ask for a raise” is at a post-recession high on Google Trends.
Claudia Goldin on the gender pay gap
The pdf of her Philadelphia paper is here. This is from the concluding section:
The reasoning of this essay is as follows. A gender gap in earnings exists today that greatly expands with age, to some point, and differs significantly by occupation. The gap is much lower than it had once been and the decline has been largely due to an increase in the productive human capital of women relative to men. Education at all levels increased for women relative to men and the fields that women pursue in college and beyond shifted to the more remunerative and career-oriented ones. Job experience of women also expanded with increased labor force participation. The portion of the difference in earnings by gender that was once due to differences in productive characteristics has largely been eliminated.
What, then, is the cause of the remaining pay gap? Quite simply the gap exists because hours of work in many occupations are worth more when given at particular moments and when the hours are more continuous. That is, in many occupations earnings have a nonlinear relationship with respect to hours. A flexible schedule comes at a high price, particularly in the corporate, finance and legal worlds.
A compensating differentials model explains wage differences by the costs of flexibility. The framework developed here shows why there are higher or lower costs of time flexibility and the underlying causes of nonlinearity of earnings with respect to time worked. Much has to do with the presence of good substitutes for individual workers when there are sufficiently low transactions costs of relaying information. Evidence from O*Net on occupational characteristics demonstrates that certain features of occupations that create time demands and reduce the degree of substitution across workers are associated with larger gender gaps.
Data for MBAs and JDs shows large increases in gender pay gaps with time since degree and also reveals the relationship between the increasing gender pay gap and the desire for time flexibility due to the arrival of children. Lower hours mean lower earnings in a nonlinear fashion. Lower potential earnings, particularly among those with higher-earning spouses, often means lower labor force participation. Pharmacists, on the other hand, have pay that is more linear with respect to hours of work. Female pharmacists with children often work part-time and remain in the labor force rather than exiting.
The paper is interesting throughout.
Addendum: Mary Ann Bronson, a job candidate from UCLA, has a new and interesting paper (pdf) on the gender gap across college majors and related issues. Here is another UCLA job market paper, by Gabriela Rubio, on why arranged marriages decline in frequency. This year, at Duke University, there are more female entering students in the Ph.d. program than male.
Assorted links
The Effect of Sexual Activity on Wages
Kevin Lewis refers me to the following (pdf), which is the abstract of a paper by Nick Drydakis:
The Effect of Sexual Activity on Wages
The purpose of this study is to estimate whether sexual activity is associated with wages, and also to estimate potential interactions between individuals’ characteristics, wages and sexual activity. The central hypothesis behind this research is that sexual activity, like health indicators and mental well-being, may be thought of as part of an individual’s set of productive traits that affect wages. Using two stage estimations we examine the relationship between adult sexual activity and wages. We estimate that there is a monotonic relationship between the frequency of sexual activity and wage returns, whilst the returns to sexual activity are higher for those between 26 and 50 years of age. In addition, heterosexuals’ sexual activity does not seem to provide higher or lower wage returns than that of homosexuals, but wages are higher for those health-impaired employees who are sexually active. Over-identification tests, robustness checks, falsification tests, as well as, decomposition analysis and sample selection modelling enhance the study’s strength. Contemporary social analysis suggests that health, cognitive and non-cognitive skills and personality are important factors that affect the wage level. Sexual activity may also be of interest to social scientists, since sexual activity is considered to be a barometer for health, quality of life, well-being and happiness. The paper adds to the literature on the importance of unobserved characteristics in determining labour market outcomes.
Assorted links
1. The first robot?, and are real-life Transformers on the way?
2. There is no great stagnation: shelf life of the Twinkie extended from 26 to 45 days. One email correspondent suggested to me that the de facto shelf life of Twinkies is already two to three years.
3. Which are the most abandoned books?
4. Good review of a good book on drones.
5. New and important critique of high-frequency trading (pdf), though I am not persuaded by their claim that batch auctions will lower the bid-ask spread.
How to save the world — earn more and give it away
Dylan Matthews reports:
Jason Trigg went into finance because he is after money — as much as he can earn.
The 25-year-old certainly had other career options. An MIT computer science graduate, he could be writing software for the next tech giant. Or he might have gone into academia in computing or applied math or even biology. He could literally be working to cure cancer.
Instead, he goes to work each morning for a high-frequency trading firm. It’s a hedge fund on steroids. He writes software that turns a lot of money into even more money. For his labors, he reaps an uptown salary — and over time his earning potential is unbounded. It’s all part of the plan.
Why this compulsion? It’s not for fast cars or fancy houses. Trigg makes money just to give it away. His logic is simple: The more he makes, the more good he can do.
He’s figured out just how to take measure of his contribution. His outlet of choice is the Against Malaria Foundation, considered one of the world’s most effective charities. It estimates that a $2,500 donation can save one life. A quantitative analyst at Trigg’s hedge fund can earn well more than $100,000 a year. By giving away half of a high finance salary, Trigg says, he can save many more lives than he could on an academic’s salary.
…In many ways, his life still resembles that of a graduate student. He lives with three roommates. He walks to work. And he doesn’t feel in any way deprived. “I wouldn’t know how to spend a large amount of money,” he says.
The full story is here. Here is commentary from Salam and Sanchez. And I have just received the new book by Michael M. Weinstein and Ralph M. Bradburd, The Robin Hood Rules for Smart Giving, an analytical treatment written by two economists.
On sleep, in my email, from Asher Meir
I don’t think we economists have quite gotten to the bottom of sleep. To the extent we think of it at all, I think we are inclined to think of it as an input in a kind of Gary Becker way. More sleep = less time for production and consumption, but too little sleep harms the productivity of both production and consumption. Solve for the optimum (in which you will be slightly over-tired all the time).In this model the objective function is to maximize the present value of all future WAKING consumption. Adopting this approach, studies showing that more sleep = longer life are not very persuasive, because the effect would have to be huge before more total hours would translate into more waking hours, particularly since the old-age hours are highly discounted. (Of course some people believe the decades-away future may bear huge positive shocks – new therapies, new kinds of experiences, etc.- and this would offset the discount.)I don’t find this model very convincing. Many people don’t view time spent sleeping as time wasted. Is enjoying a good nap merely a synonym for enjoying subsequent consumption more intensively, or do we perhaps actually enjoy a good nap? (My 17 year old son is adamant that he enjoys sleeping and sometimes it seems to be his favorite activity.)
And he follows up with this:
…My conjecture is that these wake drugs will mostly change the intertemporal substitutability of sleep. It will be easy to “borrow” wakefulness the night before an exam, during an extended battle, etc. But the total amount of lifetime sleep will be little affected. Qui vivra, verra.Could also be related to the frequency and pleasantness of dreams. I have frequent and sometimes quite interesting dreams so giving up on sleep would be more of a sacrifice for me than for someone who has few dreams or frightening ones.
Exploratory trading
Adam D. Clark-Joseph, from Harvard, has a job market paper on high-frequency trading and here is the abstract:
Using comprehensive, account-labeled message records from the E-mini S&P 500 futures market, I investigate the mechanisms underlying high-frequency traders’ capacity to profitably anticipate price movements. Of the 30 high-frequency traders (HFTs) that I identify in my sample, eight earn positive overall profits on their aggressive orders. I find that all eight of these HFTs consistently lose money on their smallest aggressive orders, and these losses are not explained by inventory management. These losses on small orders, as well as the more-than-offsetting gains on larger orders, could be rationalized if the small orders provided some informational value, and I model how a trader could gather valuable private information by using her own orders in an exploratory manner to learn about market conditions. This co-exploratory trading model predicts that the market response to the trader’s co-exploratory order would help to explain her earnings on her next order, but would not explain any other traders’ subsequent performance [TC: note that I’ve tried to correct for garbled text in my reproduction of this last sentence]. In direct confirmation of the model’s predictions, I find that a simple measure of changes in the orderbook immediately following small aggressive orders placed by the eight HFTs explains a significant additional component of those HFTs’ earnings on subsequent, larger orders, but this information offers little or no additional power to explain other traders’ earnings on subsequent orders. These findings help to clarify nature of the information on which HFTs trade and offer a starting point to address the open questions about social welfare implications of high-frequency trading.
Here is a new report of a very different study of HFT, which I have not yet had the chance to read. On the surface it simply appears to suggest that most people trade too much.
Assorted links
The spread of priority queueing
Here is one example of many:
Take the Six Flags White Water amusement park in Atlanta, which implemented a priority queue system in 2011.
Some guests simply queue up for their rides. Those who purchase green-and-gold wrist bands – fitted with radio frequency technology – are able to swim in the pool or eat snacks before being alerted to their turn.
Guests who pay an even higher fee – roughly double the price of admission – get the gold flash pass, cutting their waiting time in half.
The company says it has been a huge hit and is now installing the system in all of its American water parks.
Furthermore:
The priority queuing system has also started to be extended to the public sphere. Many people who drive to Six Flags White Water take Interstate highway I-85.
In October 2011, Atlanta created a priority lane on the highway for drivers with a Peach Pass – the price of driving in the lane changes depending on how much traffic there is.
For the pointer I thank Ray Lopez.