Monday, August 20, 2018
Friday, August 10, 2018
Excellent Book! "Mike Martin" - "Why We Fight"
https://www.hurstpublishers.com/book/why-we-fight/
I found this book by Mike Martin to be a compelling warning against underestimating the importance and impact of top-down causation; here derived from the in-group versus out-group dynamics driven by our evolutionary propensity to seek status and belonging in our in-group, and for leaders to seek to dominate other leaders (apparently leading to a relatively fixed rate-of-conflict over recorded history).
As the in-group gets larger the relative number of deaths in conflicts seems to go down; while elite vs. elite, leader vs. leader conflict derived from our evolved drive to dominate other leaders drives us into further conflict at a relatively constant rate.
That this is all driven by inequality that decimates the in-group sense of belonging and relative status, as elites and leaders claw resources away from the in-group members in their desperate desire to dominate other leaders. The in-groups violently fracture and leaders violently clash with each other in highly personalised attempts to dominate each other in ways derived from our stone-age ancestors evolutionary adaptations.
For me, this really resonated with the idea of hierarchical causality in financial economics; where bottom-up agent-based models have a poverty of not yet being able to effectively account for top-down causation and its affect on individual agent strategies and dynamics - that we may need to generalise the idea of agents (with complex adaptive and purposeful behaviours) to classes of computational components along the lines of some sort of actor type model to better model purposeful system components that have both top-down and bottom-up causation linkages. For me hierarchical causality is a phenomenological fact that needs to be accounted for in real-world models.
It may also be that the only way forward is to augment leadership decisions in the corporate and political sphere with artificial intelligence in order to ameliorate and moderate our stone-age derived biases. We remain relatively effective at making fair decisions (though fairness does not equate with the economic notion of rationality) at the level of small groups, our immediate communities; but seem to fail miserably when our in-group scaled to the size of nation states with the advent of printing, and now is failing as the in-group can globalise, with the advent of the internet, online ordering and globalisation in general.
We appear not to be "fit-for purpose" as leaders in the age of globalisation. Our evolutionary adaptations have not caught up with rapid technological changes around us. We could probably use some technological assistance. We may need to find a way of re-organising ourselves into an in-group that may not have an out-group. We need leaders whom do not seek to dominate other leaders - I think this is currently an impossibility.
Our own natural propensity to fawn over royalty, super-hero's and power continually leads us to collectively select leaders whom continue to seek to dominate and re-enforce the very power and status that generates inequality that in turns leads to violent conflict. The irony of the positive feed-back is the tragedy of our times. How do we cut this Gordian Knot?
Of course elites naturally fear (through their evolutionary derived need to dominate other leaders) anything that may require less control, or a weakened ability to accrue wealth and power relative to other comparable leaders - however; the key point (for me) from Mike Martins book - the most effective current strategy to level inequality has historically been violent conflict. This is the tragedy. Elites typically lose their wealth and power and new elites emerge through violent conflicts.
This is the for me the key warning of the book; that we do need a new way of thinking about finance, economics and democracy as informed by better knowledge of our-selves as humans in collective. Human elites and human leaders seem evolved to favour centralisation, hierarchy and relative wealth accrual at all-cost, to fear loss of status and power above everything else - while history seems to favour decentralisation, diversity, fairness in trade, open societies with rule of law, transparency, accountability, open and equal education, health-care and a respect for difference, as ways to reduce violent conflict and help individuals have a sense of belonging and status. This is a remarkably simple insight that the book seems to provide. This is not about ideology it is about human nature.
If we could simply moderate our leaders petty evolved need to dominate other leaders and provide more people with a sense of status and belonging we would probably avoid much of the violence that plague our current world - so making the world safer, richer and better resourced and fairer for ourselves and others. It really suggests that there is a way of breaking the cycle of inequality and violence that we remain locked into due to the positive feed-backs from our own evolved nature.
Tim Gebbie 2018
I found this book by Mike Martin to be a compelling warning against underestimating the importance and impact of top-down causation; here derived from the in-group versus out-group dynamics driven by our evolutionary propensity to seek status and belonging in our in-group, and for leaders to seek to dominate other leaders (apparently leading to a relatively fixed rate-of-conflict over recorded history).
As the in-group gets larger the relative number of deaths in conflicts seems to go down; while elite vs. elite, leader vs. leader conflict derived from our evolved drive to dominate other leaders drives us into further conflict at a relatively constant rate.
That this is all driven by inequality that decimates the in-group sense of belonging and relative status, as elites and leaders claw resources away from the in-group members in their desperate desire to dominate other leaders. The in-groups violently fracture and leaders violently clash with each other in highly personalised attempts to dominate each other in ways derived from our stone-age ancestors evolutionary adaptations.
For me, this really resonated with the idea of hierarchical causality in financial economics; where bottom-up agent-based models have a poverty of not yet being able to effectively account for top-down causation and its affect on individual agent strategies and dynamics - that we may need to generalise the idea of agents (with complex adaptive and purposeful behaviours) to classes of computational components along the lines of some sort of actor type model to better model purposeful system components that have both top-down and bottom-up causation linkages. For me hierarchical causality is a phenomenological fact that needs to be accounted for in real-world models.
It may also be that the only way forward is to augment leadership decisions in the corporate and political sphere with artificial intelligence in order to ameliorate and moderate our stone-age derived biases. We remain relatively effective at making fair decisions (though fairness does not equate with the economic notion of rationality) at the level of small groups, our immediate communities; but seem to fail miserably when our in-group scaled to the size of nation states with the advent of printing, and now is failing as the in-group can globalise, with the advent of the internet, online ordering and globalisation in general.
We appear not to be "fit-for purpose" as leaders in the age of globalisation. Our evolutionary adaptations have not caught up with rapid technological changes around us. We could probably use some technological assistance. We may need to find a way of re-organising ourselves into an in-group that may not have an out-group. We need leaders whom do not seek to dominate other leaders - I think this is currently an impossibility.
Our own natural propensity to fawn over royalty, super-hero's and power continually leads us to collectively select leaders whom continue to seek to dominate and re-enforce the very power and status that generates inequality that in turns leads to violent conflict. The irony of the positive feed-back is the tragedy of our times. How do we cut this Gordian Knot?
Of course elites naturally fear (through their evolutionary derived need to dominate other leaders) anything that may require less control, or a weakened ability to accrue wealth and power relative to other comparable leaders - however; the key point (for me) from Mike Martins book - the most effective current strategy to level inequality has historically been violent conflict. This is the tragedy. Elites typically lose their wealth and power and new elites emerge through violent conflicts.
This is the for me the key warning of the book; that we do need a new way of thinking about finance, economics and democracy as informed by better knowledge of our-selves as humans in collective. Human elites and human leaders seem evolved to favour centralisation, hierarchy and relative wealth accrual at all-cost, to fear loss of status and power above everything else - while history seems to favour decentralisation, diversity, fairness in trade, open societies with rule of law, transparency, accountability, open and equal education, health-care and a respect for difference, as ways to reduce violent conflict and help individuals have a sense of belonging and status. This is a remarkably simple insight that the book seems to provide. This is not about ideology it is about human nature.
If we could simply moderate our leaders petty evolved need to dominate other leaders and provide more people with a sense of status and belonging we would probably avoid much of the violence that plague our current world - so making the world safer, richer and better resourced and fairer for ourselves and others. It really suggests that there is a way of breaking the cycle of inequality and violence that we remain locked into due to the positive feed-backs from our own evolved nature.
Tim Gebbie 2018
Tuesday, July 4, 2017
Saturday, April 8, 2017
Back to the public-vs-private debt debate
Back to the public-vs-private debt debate for beleaguered SA parastatals:
"This scenario would mirror the events of 1985 when then President PW Botha delivered his crazed Rubicon Speech which caused a $13 billion default. The foreign debt/GDP ratio hit 40%. Today it is nearly 50%. Botha was compelled to impose exchange controls."
[http://www.wits.ac.za/news/latest-news/in-their-own-words/2017/2017-04/downgrade-is-a-wake-up-call-for-sa-to-revisit-key-economic-policies.html]
Then there are perspectives from bigger markets:
https://www.youtube.com/watch?v=Dm2pnZ76i-Y
Sunday, April 2, 2017
Which ZARandlord are you ?
http://www.wits.ac.za/news/latest-news/research-news/2017/2017-03/reduced-jse-fees-have-a-cost.html
and
https://phys.org/news/2017-04-fast-technology-driven-unintended-consequences.html
Reduced JSE fees have a cost
- See more at: http://www.wits.ac.za/news/latest-news/research-news/2017/2017-03/reduced-jse-fees-have-a-cost.html#sthash.ySSCCpU0.dpuf
and
https://phys.org/news/2017-04-fast-technology-driven-unintended-consequences.html
Reduced JSE fees have a cost
Regulatory changes aimed at encouraging very fast, technology-driven trading on the JSE may have some unintended consequences.
Global markets have undergone several transformations since the repeal of the Glass-Steagall act in 1999. This enabled US-based global investment banks to trade on behalf their own proprietary interests, as well as the interests of their customers.
While the JSE is technically an older, medium sized market by capitalisation in the global network, its electronic trading platform in Johannesburg and fee model are relatively new.
In September 2013 the JSE overhauled its transaction billing system to eliminate the minimum fee of 4.00 ZAR per trade (excl. VAT), allowing fees to comprise a significantly smaller part of single-transaction commissions. At least one anticipated benefit was to make algorithmic buying and selling of large orders feasible by facilitating strategies of smaller, less obvious trades.
In addition to this, the exchange’s matching system [computer hardware and software], was brought back from London to South Africa and a new co-location service on the JSE’s premises, for investors to house their computerised trading systems, were announced.
“These regulatory changes were aimed at encouraging very fast, technology-driven trading on the JSE,” says Prof Diane Wilcox of the QuERI Lab Research group in the School of Computer Science and Applied Mathematics at the University of the Witwatersrand. “In developed markets, minimal transaction costs per trade make the processing of trillions of orders per day possible. Like any large-scale, safety-critical system, an electronic trading platform is vulnerable to process error and 'viruses'. For markets, the latter can include trading strategies which abuse technological advantage to extract risk-free profit or manipulate prices. If a market enables too many predatory trading algorithms then capital is leaked away from optimal investment and information contained in prices becomes less reliable."
Wilcox and her colleagues, Prof Tim Gebbie and graduate students Mr Michael Harvey and Dr Dieter Hendricks, presented their research on unintended consequences of the regulatory changes at the JSE in a recent paper on deviations in price impact.
For sustainability, market makers need to ensure market quality to attract and protect investment, and hence, the price-formation process. To this end, various measurements can be monitored. In 2003, a team of physicists reported on an investigation in the journal Nature, which applied advanced dimensional analysis to large volumes of data from the New York Stock Exchange. They uncovered evidence for a new demand- supply relationship which related price-change to volume of transaction.
“Persistent deviations in price impact and other market quality estimators can be symptomatic of the presence of disruptive arbitrage,” say Wilcox. “Thus, tracking such measurements is similar to monitoring the health of a patient or high-performance athlete. Significant changes in expected levels can be used to halt trading under extreme conditions.”
“Major market participants, who now rely on mathematical algorithms rather than human traders, have acquired more computing power and software development to stay competitive, but these costs are still passed on to the consumer ,” says Gebbie.
The work of the QuERILab team reports on the occurrence of an anomaly in the price impacts of small transaction volumes for financial stocks. It was found that the price impact corresponding to smaller volume trades was greater than expected, relative to prior estimates for stocks comprising the FINI index. Such deviations can have significant implications for risk management. The research shows how a decrease in direct transaction costs resulted in an unexpected increase in indirect costs through price impact.
“Our investigation is aimed at improving the understanding market microstructure. This refers to the combination of regulation and expected properties of data recorded in a high-precision electronic order book of different types of orders and transactions which match buyers and sellers ,” says Wilcox.
“Empirical studies of price formation suggest that regulatory changes, particularly those encouraging varieties of technology-driven races associated with speed of trading and increased volume, may have unintended consequences for costs to end-users, such as pension funds, by introducing novel risks within markets or increasing market fragility. ”
Some stakeholders support the view that competition between more local stock exchanges offers insurance against these new risks, while others advocate for more regulation in public interest.
An inevitable part of the “arms race” at stock markets around the world is an increased need for skilled risk measurement and management in financial markets. Where previously traders coped with astute, quick calculations on noisy trading floors, the transformation to electronic order books brought a shift in the required quantitative skills for understanding price formation.
“The application of high performance computing to analyze large volumes of historical data and respond to new information to make trade decisions within milliseconds [0.001 of a second] or microseconds [0.000001 of a second], has caused a massive disruption in the industry,” says Gebbie.
“It is a bit like what Uber has done to parts of global taxi industry, but in the trading world. Experienced traders, who needed business savvy and some asymmetric access to market information – perhaps based on social networks and skill accumulated over many years, have been and are being replaced by scientists and engineers, who combine analytic skill and knowledge of the technological developments in markets to optimise allocation of capital,” says Gebbie.
About the research
The research was based on the analysis of terabytes of transaction data, sourced from Thomson-Reuters, and has been funded by the National Research Foundation as part of a broader research project, aimed at better understanding financial markets.
The QuERI Lab research group supports research-driven teaching in the Computational Finance BSc Honours courses within the School of Computer Science and Applied Mathematics at WITS University. Find the research paper online here.
Thursday, February 9, 2017
(Interesting Books) Why Nations Fail (2013) Acemogly & Robinson
A thought provoking read highlighting why "trade-test innovation" is at the heart of economic
success when states are "inclusive" rather than "extractive". That an organized and centralize state may be a critical component for economic success but that the centralization must avoid the path to extractive economics by an elite, and balance the need for centralization against interests of societies members. That the incentives created by inclusive organization seem to generate the associated trade-test innovation necessary for the creative destruction that has historically delivered economic growth. Creative destruction that perpetually threatens the controls by the elites of any organized and centralized state, but through trade and innovation creates the opportunities for a better and more prosperous life for those in broader society.
Why Nations Fail (2013) ACEMOGLU AND ROBINSON
Summary
success when states are "inclusive" rather than "extractive". That an organized and centralize state may be a critical component for economic success but that the centralization must avoid the path to extractive economics by an elite, and balance the need for centralization against interests of societies members. That the incentives created by inclusive organization seem to generate the associated trade-test innovation necessary for the creative destruction that has historically delivered economic growth. Creative destruction that perpetually threatens the controls by the elites of any organized and centralized state, but through trade and innovation creates the opportunities for a better and more prosperous life for those in broader society.
Why Nations Fail (2013) ACEMOGLU AND ROBINSON
Summary
" ... Why Nations Fail answers the question that has stumped the
experts for centuries: Why are some nations rich and others poor, divided by
wealth and poverty, health and sickness, food and famine?
Is it culture, the weather, geography? Perhaps ignorance of
what the right policies are?
Simply, no. None of these factors is either definitive or
destiny. Otherwise, how to explain why Botswana has become one of the
fastest-growing countries in the world, while other African nations, such as
Zimbabwe, the Congo, and Sierra Leone, are mired in poverty and violence? ..."
SAFA 2017 Talk : 18-20 January 2017 Cape Town, South Africa
Title:
Learning zero-cost portfolio selection with pattern matching for intraday
trading
Speaker:
Tim Gebbie
Authors:
Tim Gebbie, Fayyaaz Loonat
Abstract:
We consider and extend an adversarial agent-based learning approach to the
situation of zero-cost portfolio selection in the domain of quantitative
trading. The algorithms are directly compared to standard NYSE test cases from
prior literature. The learning algorithm is used to select parameters for
agents (or experts) generated by pattern matching past dynamics using a simple
nearest-neighbour search algorithm. We demonstrate that patterns in financial
time-series on the JSE can be systematically exploited in collective, but that
this does not imply predictability of the individual asset time-series
themselves. We show that these types of machine learning algorithms are well
suited for intra-day quantitative trading.
http://www.exbo.co.za/REG/dynamic_forms/generated_forms/safa_2017_register.php
http://uct-cmc.co.za/conferences/southern-african-finance-association-safa-conference/
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