Monday, January 24, 2011

Patterns, Profits, and Market Meltdowns

When I was in library school I was fascinated by the idea of sifting through enormous amounts of disparate information and theoretically picking out similarities of pattern and causal relationships. Wall Street is fascinated with this concept as well only they employ complex computer programs to sift through massive data steams in hopes of trying to predict how the stock market will behave and thereby profit from those changes. The problem with the over-reliance on this type of rapid, automatic type of buying and selling, which currently accounts for over 70% of trade volume, is when these algorithms begin to erroneously influence the price of stocks in nonsensical ways such as a stock losing 90% of its value in 5 minutes or shares of Apple selling at $100,000 per share. All of this is detailed in a recent article in Wired Magazine entitled, "Algorithms Take Control of Wall Street." The SEC has put into effect measures that work to control or slow down the rate at which these financial disasters unfold. However, many practitioners agree that the scale of the interconnectedness is so vast as to suggest that this web of financial algorithms has taken on a life of its own.

Super Searchers on Competitive Intelligence: The Online and Offline Secrets of Top CI Researchers

1 comment:

Alex Shrugged said...

Don't forget the Tom Clancy novel, "Debt of Honor". Due to a misunderstanding (or forgetting) of how Wall Street computers model and predict the market fluctuations, a clever and vindictive financial wizard fools a brokerage firm into bringing down the market and as a consequence, starts a war of revenge. The book describes in some detail how one brokerage company could bring down the entire system if it had malicious intent and didn't mind destroying it's own self in the process.