The Rise of Computerized Financial Trading
Many of us invest in financial assets for various purposes: from our retirement savings to our children’s college funds. The value of these assets is determined by financial markets, where the assets are traded. But are these markets efficient and fair? Are they prone to manipulation that can lead to instability and investment losses? The recent financial crisis has brought these questions to the forefront of policy debate.
Dr. Andriy Shkilko, Canada Research Chair in Financial Markets, is studying the structure, efficiency and stability of modern financial markets through the use of massive amounts of data on trading activity.
Modern financial markets are driven by powerful computers that use state-of-the-art software to trade assets at speeds incomprehensible to humans. High-speed computers trade millions of shares in the time it takes us to blink. And, they do so over and over again, microsecond after microsecond.
Many industry participants believe that computerized trading causes harm to markets. The Flash Crash of 2010, in which investors briefly lost hundreds of billions of dollars, has often been blamed on computerized trading. Other examples of volatility linked to computerized trading abound. Regulators around the globe are now trying to wrap their minds around this phenomenon, to prevent future market instability.
Shkilko’s research will provide regulators and policy-makers in Canada and around the globe with the evidence they need about the effects of technology on market quality.