Tuesday, March 10, 2015

Markets, arbitrage, etc.

Moral: Wherein we are still in a pause, but events continue to roll along.

On Monday, 03/09/2015, there were several articles in the WSJ which had the typical flavor, being reflective (Friday was over and done with; there was time to look at what happened during the week; such times can offer to those who are thoughtful some slack time with which to get it right). This post at 7oops7 briefly describes three of these. Actually, the three require a lot more attention than being given now, but these posts (see link) are a reminder.

In this post, we are looking at the Bull and Bear charting for the past several decades. The graphic comes from one of the articles (How to Survive a Bear Market).

My time is from the 1970s and onward. In fact, in the mid-80s, I had the opportunity to see up close the floor and back office computational methods (Wall Street). That, coupled with my academic studies and general knowledge of the human economic experience, is the basis from which I will (continue to) argue the points. Much of what has been written, here, from the beginning is still apropos.

Note please, that the line is flat-ish from the 60s to the 80s. We can point to all sorts of influences, but I will argue strictly from the enabling influences of technology. The whole psychology has changed; too, you have the "brains" running amok with their mathematical prowess (when characterized properly, it's obvious). The resulting cloaking effect covers a whole lot of mischief.

Ah, Janet, you are talking ethics and the Wall Street in the same breath?


So, we need to look at the progress over that period since the early 80s. But, we really need to go back to the beginning and see how the floor and the back office adopted automation, as well.

Other changes, such as pricing methods, etc., came about, too. The effect of these will be duly noted.


We have looked, albeit cursorily, at markets. Arbitrage was mentioned a time or two. This was all a rage when I was a graduate student, but it did not interest me as much as it did others. You might say, my reaction was the same as with "financial engineering" (what a misnomer).

We will be getting back to arbitrage. These three papers are offered, for now.
  • Too good to be true? - Somehow, we need to get the proper perspective back to fore. 
  • Historical perspective - People have studied the evolution of markets and arbitrage. Why is no one, beside me, looking at the computational aspect (especially, those that are obvious - to most except the STEMers)? 
  • Ancient roots - Indeed. Note, one example of an approach was to circumvent the strictures on usury. Yes, financial innovation is not new. 
Remarks:  Modified: 03/22/2015

03/10/2015 -- The one constant, as many say, is human greed. Too, the gradation of humans in all sorts of ways is age old. The current state seems to be especially attuned to the success of a small percentage (congratulations, guys and gals, for getting things to go your way). However, the problems that arise (imbalances) do not look favorably for sustainability of the mismatch. ... My experience leads to proper discussion (see Grind's little thing of remembering 5% -- yes, that and a lot more is my response).

03/15/2015 -- Finally, getting around to the pending business.

03/17/2015 -- Dogs of the Dow: Market Cap table, Most activeBeyond the wildest dream.

03/22/2015 -- Jealous? No way, Jose. FED gives Wall Street what it wishes.

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