Real-Time Risk (eBook)

IRENE ALDRIDGE is managing director and quantitative portfolio manager at ABLE Alpha Trading and president of ABLE Markets. She is author of Searching for High-Frequency Trading Opportunities and High-Frequency Trading. STEVE KRAWCIW is CEO of ABLE Markets, a leader in market microstructure analytics. His experience comes from such firms as McKinsey & Co. and Credit Suisse, and he is coauthor (with Irene Aldridge) of Quant Investor Almanac 2011.

Acknowledgments xi

Chapter 1 Silicon Valley is Coming! 1

Everyone is into Fintech 3

The Millennials are Coming 7

Social Media 9

Mobile 10

Cheaper and Faster Technology 13

Cloud Computing 14

Blockchain 15

Fast Analytics 15

In the End, It's All About Real-Time Data Analytics 18

End of Chapter Questions 19

Chapter 2 This Ain't Your Grandma's Data 21

Data 21

The Risk of Data 23

Technology 27

Blockchain 30

What Elements are Common to All Blockchains? 31

Conclusions 39

End of Chapter Questions 39

Chapter 3 Dark Pools, Exchanges, and Market Structure 41

The New Market Hours 51

Where Do My Orders Go? 52

Executing Large Orders 54

Transaction Costs and Transparency 56

Conclusions 57

End of Chapter Questions 57

Chapter 4 Who is Front-Running You? 59

Spoofing, Flaky Liquidity, and HFT 64

Order-Based Negotiations 78

Conclusions 80

End of Chapter Questions 81

Chapter 5 High-Frequency Trading in Your Backyard 83

Implications of Aggressive HFT 89

Aggressive High-Frequency Trading in Equities 96

Aggressive HFT in US Treasuries 98

Aggressive HFT in Commodities 99

Aggressive HFT in Foreign Exchange 101

Conclusions 102

End of Chapter Questions 102

Chapter 6 Flash Crashes 103

What Happens During Flash Crashes? 104

Detecting Flash-Crash Prone Market Conditions 116

Are HFTs Responsible for Flash Crashes? 124

Conclusions 126

End of Chapter Questions 127

Chapter 7 The Analysis of News 129

The Delivery of News 130

Preannouncement Risk 139

Data, Methodology, and Hypotheses 143

Conclusions 154

End of Chapter Questions 154

Chapter 8 Social Media and the Internet of Things 155

Social Media and News 160

The Internet of Things 165

Conclusions 169

End of Chapter Questions 170

Chapter 9 Market Volatility in the Age of Fintech 171

Too Much Data, Too Little Time--Welcome, Predictive Analytics 174

Want to Lessen Volatility of Financial Markets? Express Your Thoughts Online! 175

Market Microstructure is the New Factor in Portfolio Optimization 176

Yes, You Can Predict T + 1 Volatility 178

Market Microstructure as a Factor? You Bet. 179

Case Study: Improving Execution in Currencies 183

For Longer-Term Investors, Incorporate Microstructure into the Rebalancing Decision 184

Conclusions 185

End of Chapter Questions 185

Chapter 10 Why Venture Capitalists are Betting on Fintech to Manage Risks 187

Opportunities for Disruption are Present, and They May Not Be What They Seem 189

Data and Analytics in Fintech 191

Fintech as an Asset Class 192

Where Do You Find Fintech? 194

Fintech Success Factors 194

The Investment Case for Fintech 196

How Do Fintech Firms Make Money? 198

Fintech and Regulation 198

Conclusions 200

End of Chapter Questions 200

Authors' Biographies 201

Index 203