Chasing the Same Signals : How Black-Box Trading Influences Stock Markets from Wall Street to Shanghai

A year before the subprime financial crisis materialized, there was a subtle warning that global equity markets were in distress. During August 2007, there was a 30 percent gap between the top stocks and the worst stocks; but the index itself was unchanged. Weeks later, prominent hedge funds came forward with similar stories about suffering massive losses in a single day. It was the world s first stock market panic by machines that were Chasing the Same Signals. Over the past decade, "black box" trading has come of age. These firms use mathematical formulas and computer wizardry to buy and sell stocks. The industry attracts the likes of mathematicians and physicists and their investment philosophy is a marriage of science and economics. Quantitative trading has a long history, but the industry was transformed when technology allowed investors to trade stocks electronically. The 2007 crisis didn t mark the demise of the black box firms; rather the opposite. They were the first to feel the impact of the financial crisis, but were the best prepared during the aftermath. And now they ve grown: more than 50 percent of today s investors are computers. The rise of black box trading has led to a number of important questions: Are they creating volatility or stabilizing the market? Why are large price swings and reversals more prevalent than ever? What happened to the buy and hold investor? And what does their trading mean to mom and pop investors who interpret the health of our economy through CNN each morning? In Chasing the Same Signals, author Brian Brown offers fascinating insights into the world of cyber trading and speculates on a future where Wall Street is dominated by computers.