The stockmarket is now run by computers, algorithms and passive managers

Unfortunately behind a paid wall but if you click through and hit ESC (on desktop) you can fully load it.

According to Deutsche Bank, 90% of equity-futures trades and 80% of cash-equity trades are executed by algorithms without any human input.

Each day around 7bn shares worth $320bn change hands on America’s stockmarket. Much of that volume is high-frequency trading, in which stocks are flipped at speed in order to capture fleeting gains. High-frequency traders, acting as middlemen, are involved in half of the daily trading volumes. Even excluding traders, though, and looking just at investors, rules-based investors now make the majority of trades.

Three years ago quant funds became the largest source of institutional trading volume in the American stockmarket (see chart 2). They account for 36% of institutional volume so far this year, up from just 18% in 2010, according to the Tabb Group. Just 10% of institutional trading is done by traditional equity fund managers, says Dubravko Lakos-Bujas of JPMorgan Chase.

Basically the article argues that market investing can be compared to a skill like chess, where basic computers are better than history’s best chessplayers, and computers don’t bring emotion into their decisions.

How does any human expect to outperform the market and/or computers given all this?




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