At one point in history, equity markets were giant discounting mechanisms, taking in all available information about the economy, earnings, sentiment, then spitting out future expectations of value.
The proliferation of HFT and Algo traders, according to a fascinating take from Ars Technica, has changed that. Our stock markets now behave no differently than a giant multithreaded software application. And on May 6th, 2010, that software app crashed:
“To be a single multithreaded app, as opposed to an unrelated collection of multithreaded apps, the different threads must somehow interact with one another. In other words, the threads must share and jointly modify some kind of state.What state do the various apps and algorithms that run on Wall Street’s machines share? At the very least, every part of the market shares the quote feed, and some parts are even more tightly coupled than that. But let’s focus on the quotes.
The price of, say, AAPL at any given moment is a numerical value that represents the output of one set of concurrently running processes, and it also acts as the input for another set of processes. AAPL, then, is one of many hundreds of thousands of global variables that the market-as-software uses for message-passing among its billions of simultaneously running threads. Does it really matter that those threads are running on separate machines at different institutions?
. . . [If] the market really is essentially an enormous piece of multithreaded software, then I’m not entirely sure what kind of rabbit hole we’ve all gone down.”
Fascinating metaphor . . .
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Source:
The stock market as a single, very big piece of multithreaded software
Jon Stokes
Ars Technica, October 7, 2010
http://arstechnica.com/business/news/2010/10/you-say-stock-market-i-say-ginormous-multithreaded-application.ars
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