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@falsenews @whiny traders: 160 characters moved the market. Big deal

@falsenews @whiny traders: 160 characters moved the market. Big deal

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Published by Adam Sussman
In the wake of the Twitter hacked-inspired volatility on April 23rd, TABB Group conducted a poll among 234 capital markets professional to gauge how the event impacted market confidence.
In the wake of the Twitter hacked-inspired volatility on April 23rd, TABB Group conducted a poll among 234 capital markets professional to gauge how the event impacted market confidence.

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Categories:Types, Research
Published by: Adam Sussman on May 06, 2013
Copyright:Attribution Non-commercial

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05/14/2014

 
 
@falsenews @whinytraders
 
140 characters moved the market. Big deal
 
While the market reacted swiftly to the false tweet posted by the hacked AP account on April 23,
many comments on the market’s reaction to the event were just as swift and premature. There
appears to be confusion between the use of headline news within automated trading and anoverestimation of the use of machine-readable news. On April 25, TABB Group measured the
institutional community’s
opinions on the event. We received 234 responses. The highlightsinclude:
 
Market structure confidence has weakened slightly since August 2012, but within one key group
the buy side
there has been an uptick (see pages 3 and 4).
 
When measuring the impact of the Hash Crash, two- thirds of participants say it has had noimpact on their market structure confidence (see page 5).
 
Nearly half of participants ignore social media in their investment decisions (see page 6).
 
Most respondents believe automated news and social media algorithms were most directly andnegatively impacted by the Hash Crash (see page 9).
Adam Sussman / Valerie Bogard
V11:016May 2013www.tabbgroup.com
 
 
 
2013 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |
1
 
@falsenews @whinytraders: 140 characters moved the market. Big deal. | May 2013
 
Exhibit 1Survey Demographics
Source: TABB Group
Tweet This Intro
@clueless 4/23: the Associated Press (@AP) tweeted
 “Breaking: Two E
xplosions in theWhite House and Barack Obama
is injured”.
Mkts tanked@AP had been hacked #stillnotCNN@2fast2trade TV news showing untouched White House and quick reporting that tweet wasfalse sent markets up@SEC_Jobs @Finra_Jobs While the impact on prices is gone, the event is causing moremarket structure debate and new investigations.@whinytrader One argument is if a tweet can make liquidity vanish and prices drop, mkt isat mercy of HFT@cololoco other argument is mkts behaved perfectly. Not a reaction to tweet, but AP. AddBoston and rational fear drove sell off @tabbforum After similar market disruptions we reached out to the to see how these issuesimpacted their attitudes@quantclients Data is from 234 responses between 4/25-4/26. Caveats below:
 
Participants self-selected the type of firm where they are employed
 
Some of the questions are leading, but someone has to do it
 
Most questions are multiple choice, but we
offer “Other” and a write
-in response.
 
Our community is heavily skewed toward the institutional community.
 
 
 
2013 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |
2
 
 
@falsenews @whinytraders: 140 characters moved the market. Big deal. | May 2013
 
Exhibit 2Cause and Effect: Which Participants Were Most Negatively Impacted
Source: TABB Group, Dataminr 
Respondents fromdifferent firms...mostly agree onwho got hurt 
the most…
RetailInstitutionalMarket MakersNews/Social Media AlgosOther
…not 
everyonewas hurt for the samereason
StopOrders,FearAlgosselling intodip;tradersreacting tochatterForced totake morerisk orretreatbecause of uncertaintyAllegedly first torespond to thetweet, they soldinto the decline;but were theyalso the first tobuy?Lack of human judgmenthurts all
 
Exchange/ATS
 
Buy Side
 
Broker/Dealers
 
Vendors/Services
But if those who traded off the news first were also the first to
identify that the information was false, isn’t it a wash? 
Dataminr, a social media analytics company, says that it alerted its users twominutes before the major news outlets broke the story that the tweet wasfalse.
There seems to be a popular misunderstanding regarding the use of machine-readable newsand sentiment analysis in trading, exacerbated by logical inconsistencies and flawedanalysis in the arguments that attempt to blame the market reaction to the false tweet onautomated trading. First, the AP tweet was posted at 1:07:50pm; the markets did not beginto react until 20 seconds later. If what began the sell-off were automated trading strategiesreading Twitter, then the reaction would have occurred much more quickly. However, manyrespondents believe news/social media algorithms were the most negatively affected. It ismore understandable that retail and institutional sellers took a hit during the brief dip. Evenduring that period, though, there were likely as many buyers as there were sellers, so thetruth is that the event probably was a wash among many types of investors.

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