Nerds on Wall Street: Math, Machines and Wired Markets

Foreword by Ted Aronson xi

Acknowledgments xiii

Introduction xv

Part One 1 Wired Markets

Chapter 1: An Illustrated History of Wired Markets 5

Chapter 2: Greatest Hits of Computation in Finance 31

Financial Technology Stars; Hits and Misses; The Crackpot as Billionaire; Future Technological Stars; Mining the Deep Web; Language Technology; EDGAR; Greatest Hits, and the Mother of All Greatest Misses

Chapter 3: Algorithm Wars 65

Early Algos; Algos for Alpha; Algos for the Buy Side; From Order Pad to Algos; A Scientifi c Approach; Job Insecurity for Traders; So Many Markets, So Little Time; Known Unknowns and Unknown Unknowns; Models Aren’t Markets; Robots, RoboTraders, and Traders; Markets in 2015, Focus on Risk; Playing Well with Robots and Algorithms; Seeing the Big Picture in Markets; Agents for News and Pre-News; Algorithms at the Edge

Part Two 89 Alpha as Life

Chapter 4: Where Does Alpha Come From? 95

Alpha from Innovation; Alpha, the ARPANET, and the Internet; Summary

Chapter 5: A Gentle Introduction to Computerized Investing 109

Indexing 101; Active Management; What Do Quantitative Managers Do?; Active Management on Steroids; Finding Information and Inefficiencies to Produce Alpha; All the Stocks, All the Time; Jumping the Trading Cost Hurdle; Putting the Pieces Together; Does This Really Work?

Chapter 6: Stupid Data Miner Tricks 135

“Your Mama Is a Data Miner”; Strip Mining the S&P 500; Enough Regression Tricks; Is There Any Hope for Data Miners?; Summary (and Sermonette); Counting the Kiddies

Part Three 149 Artificial Intelligence and Intelligence Amplification

Chapter 7: A Little AI Goes a Long Way on Wall Street 159

Prehistory of Artificial Intelligence on Wall Street; AI People Can Use; Where’s the AI?; Real Charting; Virtual Charting; Descriptive Programming; Information Flows and Displays in MarketMind and QuantEx; Integration with Real-Time Feeds and Historical Databases; Composing Syntactically Bulletproof Programs; From Indications to Orders to Executions; Vapor No More; Future Plans for AI in Finance (in 1995)

Chapter 8: Perils and Promise of Evolutionary Computation on Wall Street 181

The AI Spring?; Genetic Algorithms; Evolving Financial Models; An Early Lesson; Arbitrage and Predictive Strategies; Maximizing Predictability; Chromosomes for Forecasting Models; FitnessFunctions for Forecasting Models; Use of the GA for Coping with a Combinatoric Explosion of Models; Genetically Optimized Forecasting Models in Hindsight; Genetic Algorithm Warning Label

Chapter 9: The Text Frontier: AI, IA, and the New Research 203

Ten Pounds of News in a Five-Pound Bag; Pre-News and Disintermediation; More Pre-News on the Internet

Chapter 10: Collective Intelligence, Social Media, and Web Market Monitors 227

Investing with Crowds; Never Met a Data Vendor I Didn’t Like; Santa Claus Is Coming to Town; Counting Messages; Whisper Numbers—Ruined by Success; Monitoring Web Activity; More Web, More Warnings

Chapter 11: Three Hundred Years of Stock Market Manipulations:

From the Coffeehouse to the World Wide Web 253 The Power of Manipulation; A Classic Market Manipulation; The Very Model of a Modern Market Manipulator; Bluffing; How Communication Changes Market Manipulation; Anatomy of a Successful Manipulation; The Internet Era; Cyber-Manipulations; It’s Not Just Micro-Caps; Where Are We Headed?

Part Four 273 Nerds Gone Wild: Wired Markets in Distress

Chapter 12: Shooting the Moon: Stupid Financial Technology Tricks 279

To Protect and to Serve; Stupid Engineering Tricks; Stupid Financial Engineering Tricks; Take Them Out and Shoot Them; Tech Hall of Shame; Quants Who Saw It Coming

Chapter 13: Structural Ideas for the Economic Rescue: Fractional Homes and New Banks 305

Chapter 14: Nerds Gone Green: Nerds on Wall Street, off Wall Street 327

Accelerating Innovation; From the Vault; Billions of Dollars and Millions of Tons of Carbon; Epilogue; Web Site

Index 343

About the Web Site 353

NerdsonWallStreet.com