September 21, 2015
From Ann-Christina Lange
HFT conference in Copenhagen on Monday 5 October
We are organizing a one-day conference on high-frequency trading at Copenhagen Business School on Monday 5 October 2015. The conference will bring together leading academic and industry experts to shed light on the current state of HFT. Key questions to be addressed are: What is the current status of the HFT industry and what challenges for competitiveness does the turn to HFT entail? Are institutional investors being picked off by these faster market participants? What are the differences between the US and European markets in terms of the regulation of HFT? What does the future of HFT look like?
There are still a few available seats, so if you are interested in attending, please sign up by following this link, where the full program is also available:
Hope to see you soon in Copenhagen!
Ann-Christina Lange and Christian Borch
P.S. Futher to HFT: please check out our new Society and Space paper ‘Markets, bodies, and rhythms: A rhythmanalysis of financial markets from open-outcry trading to high-frequency trading’:http://epd.sagepub.com/content/early/2015/08/20/0263775815600444.full.pdf+html
“FUTUR€$ – Prospective Money and Money’s Prospects” Conference, 24-26 September 2015, University of Basel, Switzerland
September 8, 2015
Dear Colleagues to whom this is of interest,
The Conference “FUTUR€$ – Prospective Money and Money’s Prospects” will take place from 24-26 September 2015 at the University of Basel, Switzerland.
In February we circulated a CfP for social-scientific contributions on the past, present, and future(s) of money, and got an overwhelming response of cutting-edge submissions. Three panels on the nature of money, the “Euro crisis”, and new monetary technologies will complement a stream of talks from leading scholars. A further highlight is the evening roundtable assembling a theologian, an anthropologist, a political economist and an investment banker (Christoph Fleischmann, Keith Hart, Dimitris Sotiropoulos, and Rainer Voss) to reflect on the problematic role played by money at our present political-economic juncture.
The speakers (from academia, practice, activism and media) are:
– Massimo Amato (Bocconi University, Milan)
– Eske Bockelmann (TU Chemnitz)
– Philipp Degens (University of Cologne)
– Christoph Deutschmann (University of Tübingen)
– Josué Quintana Diaz (University of Frankfurt)
– Nigel Dodd (London School of Economics)
– Rachel O’Dwyer (Trinity College Dublin)
– Elena Esposito (University of Modena and Reggio Emilia)
– Lorenzo Esposito (Bank of Italy, Rome)
– Luca Fantacci (Bocconi University, Milan)
– Christoph Fleischmann (Journalist)
– Keith Hart (London School of Economics & University of Pretoria)
– Joseph Huber (University of Halle)
– Klaus Kraemer (University of Graz)
– Duncan Lindo (University of Leeds)
– Bill Maurer (University of California, Irvine)
– Giuseppe Mastromatteo (Catholic University, Milan)
– Michael Rafferty (University of Sydney)
– Robert Seyffert (University of Konstanz)
– Dimitris Sotiropoulos (Open University Business School, UK)
– Ute Tellmann (University of Hamburg)
– Rainer Voss (from the film “Master of the Universe”)
– Beat Weber (National Bank of Austria OeNB, Vienna).
For more information, the conference programme, and abstracts, please visit http://www.futuresconference.info. Attendance is 30.00 CHF (15.00 CHF for students) for the full three days.
We – Axel Paul, Phil Mader, Cornelius Moriz, José Colón – would be delighted to welcome you to Basel.
September 7, 2015
From Jessica Weinkle
Last week, Bryan Norcross, a well-known television meteorologist for the American cable network, The Weather Channel, criticized the Florida Governor for declaring a state of emergency too early,
I asked Governor Rick Scott if “state of emergency” wasn’t inflammatory in a live interview on The Weather Channel last Friday. He gave a boilerplate answer, “we want everyone to be prepared”. Of course we do, but it’s the wrong answer.
Mr. Norcross then argued that the bad call derived from bad information,
Scientifically speaking, the [National Hurricane Center] had no business making 96- or 120-hour forecasts for Tropical Storm Erika last week. The state of meteorological science isn’t sufficiently advanced to make a deterministic extended forecast given the conflicting signals the models and common sense were sending.
The post set off a wave of debate among tropical meteorologist on a specialized listserve intended for heated academic battles. Is it the NHC’s fault for the governor’s eagerness? When is information good enough for consideration in decision-making by the public or government authority?
Decisions about risk cannot be divorced from the social, economic and political context in which they are made. Mr. Scott’s decision for a state of emergency likely had less to do with the scientific tropical cyclone forecast then it did with political concern for the context of decision making.
For instance, in the background of TS Erika was the 10-year anniversary of the Hurricane Katrina landfall in Louisiana. Remembering the evacuation/human rights nightmare that was Katrina presented large political stakes for the governor.
Information does not have inherent value. It takes perspective and objectives for information to imply a course of action.
Perhaps nowhere do we see this so vividly as in finance and risk decision making.
The US Federal Reserve’s long-winded posturing over interest rates comes immediately to mind. The importance and meaning of employment data and world affairs evolves depending on who is considering the information, when they consider it and what decision they wish the Fed to make about its rates.
It is not unusual for governments to control the view of risk imposed upon a public or made available to the market. In the US, a common public policy tool for buffering perceptions of risk is a residual market. But, such actions may lead to great controversy as technical approaches and democratic (little ‘d’) approaches to decision making fight for power over characterizations of risk.
In a recent article that provides a public policy evaluation of Florida’s Citizens Property Insurance Corporation, I discuss the controversy over hurricane insurance coverage stemming from technocratic and democratic approaches to characterizing risk. The article gives particular attention to the social and political context for decision making about science in the creation and use of hurricane catastrophe models for ratemaking. That paper is found here. Abstract is below.
A Public Policy Evaluation of Florida’s Citizens Property Insurance Corporation
Journal of Insurance Regulation
This article presents a public policy evaluation of Florida’s residual insurance market for catastrophic hurricane risk, Citizens Property Insurance Corporation (Citizens), in respect to its legislative mandate to provide “affordable property insurance.” Following in the academic tradition of the policy sciences, this work draws from multiple disciplines such as sociology, political science, climate science and actuarial science, and the technological and social contexts for decision-making about insurance rates to better understand outcomes of the Citizens public policy. Citizens has difficulty meeting its mandate due to four main factors: 1) the use of Citizens as a means to deflect market judgments of risk when they threaten the state’s economy; 2) the practical difficulty of an actuarially sound residual market; 3) the politicization of the hurricane risk; and 4) the conflict between Florida’s economic and property insurance public policies. The struggle between political interests for control over the characterization of hurricane risk that Florida insures against reflects a lack of consensus on desired outcomes of a residual market. In order to reconcile the conflict between insurer economic sustainability and insurance affordability a public dialogue needs to develop for guiding policymaking for Florida’s future economy.
Jessica Weinkle. Assistant Professor, University of North Carolina Wilmington
Call for papers: Reconsidering Debt, Money, and Other Relationships. Vienna. 10-14 July 2016. Deadline 9/30
September 3, 2015
From Aaron Pitluck:
I am organizing a panel of possible interest to readers of this listserv, entitled “Reconsidering Debt, Money, and Other Relationships” at the International Sociological Association’s Third Forum of Sociology this summer in Vienna, Austria, 10-14 July 2016 (details below). This will be one of 15 panels organized by the Economy & Society research committee. Although the conference is next summer, the deadline for submitting abstracts is fast approaching: September 30, 2015, 24:00 GMT.
Reconsidering Debt, Money, and Other Relationships
Aaron PITLUCK, Illinois State University, USA, Pitluck@IllinoisState.edu
Sociologists frequently understand finance in essentialist terms – as the creation and brokerage of capital. However, in line with other relational approaches in sociology, numerous scholars have investigated debt, credit, bonds, and other debt-like financial instruments as social relationships.
This open call for papers seeks empirical research that explores debt, money, bonds, and other debt-like financial instruments as social relationships. For example, papers can explore how culture, moral beliefs, norms, habit, imitation, strategic behavior, social networks, or social institutions shape ongoing debtor/creditor relationships. At the level of organizations, how does viewing debt and credit as relationships alter our understanding of the behavior of households, firms, corporations, municipalities, states, or transnational regions? At the level of financial instruments and markets, how are bonds, mortgages, and other household debt products created, marketed, and consumed? At higher levels of abstraction, how does viewing debt as a social relationship alter our empirical analysis of leveraging and deleveraging of households, corporations, nations, and currency regions? These broad questions are merely indicative of the wide range of research welcome in this session.
Two types of papers will be given preference. First, this session welcomes empirical research that may potentially permit a reconsideration of the ongoing intellectual and policy debates on sovereign and household debt in the Eurozone. Second, given the persistent Northern bias of ISA, theoretically-driven empirical research conducted outside of the North Atlantic is particularly welcome.
Please submit an abstract (300 words max) through the ISA Portal:
If you have any questions or concerns about your abstract, please don’t hesitate to reach out to me atPitluck@IllinoisState.edu.
July 13, 2015
From Nathan Coombs:
As readers of Socializing Finance will be well aware, the nexus of finance and society is increasingly subject to critical attention from a range of commentators. Economic sociologists and political economists have been at the forefront of such investigations, but they are increasingly accompanied by a wider array of theorists, activists, playwrights, novelists, and artists.
Finance and Society is a fully independent and open-access journal, dedicated to bringing together these diverse voices and generating new insights into how money and finance organise social life. Above all, the journal’s aim is to publish research in which the social substance of finance itself takes precedence over the canons and controversies of the academy.
In keeping with this overarching aim we have two ancillary goals for the journal. The first is to facilitate an extensive development of finance studies as a field. If present modes of inter-disciplinary exchange see cutting-edge research dispersed across a range of platforms, then our aim is to provide a place where these diverse research agendas can come together. We therefore welcome and invite contributions from scholars working with concepts or methods from political economy and the social studies of finance, as well those who draw on philosophical or aesthetic registers.
Our second and related goal is to facilitate an intensive development of the field. In particular, we invite and encourage research that grapples with synergies and tensions between new trends in finance studies. This includes (but is by no means limited to) the question of foundation and structure within the performativity paradigm, which we discuss in our inaugural editorial. How, for example, do representations of finance interact with the technical devices used by market participants and regulators, and what are the emergent structural properties of such interactions? The future of finance studies will be forged through questions like this, and we offer this new journal as a site where more such questions might be asked and answered.
Our first issue, ‘Hard Cash’, draws together scholars from a range of different fields to reflect on the nature of money in the context of contemporary finance. So, while Bob Jessop reflects on the money-form in cash, credit, and capital, Max Haiven explores the role of money as a medium for contemporary art practices.
Looking towards the future, Finance and Society is keen to receive articles, essays, and review articles from any scholars exploring the social foundations or consequences of finance. We also invite proposals for special issues and suggestions for fora on emerging themes or ground breaking new publications.
Finance and Society is very much a collective endeavour, tapping into an existing groundswell of bold post-disciplinary scholarship on the sociality of finance. Whether as reader or contributor, we hope you will see the journal as a collaborator in your own innovative explorations within the field.
Angus Cameron (University of Leicester)
Nathan Coombs (University of Edinburgh)
Amin Samman (City University London)
July 7, 2015
In light of recent events in Greece, last week’s post by Emilio Marti seems strangely prescient. Emilio called for more research on the wider societal implications of financial markets: how, he asks, are people ultimately affected by financial markets? How is financial innovation impacting actual investors?
Emilio’s call is part of a broader call for a political turn in SSF. His arguments build on a terrific paper with Andreas Scherer, forthcoming in the Academy of Management Review, as well as numerous comments made in the past by Fligstein, Williams, Roscoe, and others. The AMR piece charges that existing analyses of HFT within the social studies of finance (Beunza and Millo 2014, as well as others) fail to address the problem of social justice. As they see it, sociologists of finance reinforce a technocratic system — different from economists in their sociological interest in stability, but servants to “the system” nevertheless.
Flattering as it is to have my work critiqued on AMR, I respectfully disagree with the diagnosis. As I see it, the transformations that are entailed in High Frequency Trading — the displacement of traditional floor intermediaries by algorithms — turns existing conceptions of what is fair on its head, calling for an entirely new critical agenda. And this is not just about finance. Algos are not just taking over trading, but also hiring, teaching and a wide range of other activities in society. The implications of my argument about ethics and financial algos, I hope, extend to all these industries.
HFT and the need for a new critical agenda
First, why do Marti and Scherer argue that sociologists are reinforcing technocracy? They make three points. First, that research ought to examine the consequences of the rise of HFT for income distribution, especially as it between those who benefit from the high compensations that an expanding financial sector affords and those groups outside of the financial sector that lose in relative or absolute terms. Second, that the design of financial regulation ought to financial regulation should include all affected societal groups, as anything else will only reflect the views of the elite members of society — regulation, again, for the one percent. And third, that financial innovation like HFT might not actually add any value, causing them to worry about where all this money flows (into the compensations of some financial-sector employees) and how this money increases income inequality. In short: existing regulation is technocratic, elitist and protective of tricksters… and sociologists of finance
I disagree on all three counts. I believe examining the distributive consequences of HFT regulation is an unnecessary burden, as governments have multiple levers at their control to achieve different societal goals. If a policy change (e.g. trade liberalization) generates so much welfare gain that the losers could in principle be compensated by the winners (by e.g., tax transfers) then governments should go ahead with it. That bigger pie can then probably be better redistributed with other tools.
Second, including non-professional traders in the regulation might sound like a good idea, but I do fear that the wider public might not add much. Some issues call for technical training. Even Habermas has changed his views on this, and his later work argues that the technically untrained public may not be able to have a productive voice in dialectical deliberation. What I would argue below, instead, is that the regulation of financial innovation (and automation in general) needs to include the voice of the profession that is being displaced.
Third, and most importantly, Marti and Scherer have not touched on the most critical concern raised by automation: ethics. What my research with Yuval shows is that finance is no difference from what Lawrence Lessig has found in other instances of automation. Automating, he found, replaces the old informal norms by the hard rules of computer code. In this process of translation, automation gives technologists a lucrative loophole: the ability to do things legally that were previously shunned as inappropriate by the community of industry actors. In the case of HFT, for instance, their work replaces traditional market-makers on the floor. But whereas the latter were subject to informal norms of proper behavior – the obligation to step in during spells of illiquidity, etc. – the new ones are not. As Yuval and I show in our paper, this contributed to the Flash Crash. Yet the Flash Crash is just one manifestation; there are many other socially destructive algorithmic trading activities that are not illegal. One is latency arbitrage, masterfully described by Michael Lewis. Another one is spoofing. And it is no coincidence that the defense of Sarao, the devil genius spoofer from Hounslow (London) was “I did nothing illegal.” And so forth.
The real problem with automation
The problem goes beyond finance. Whether it is in the music, book selling, dating or the taxi industry, automation has created a social distance between industry participants, potentially turning markets into a Hobbesian nightmare of “every algo for itself.” The original goal was to reform society through the codification of behavior, hoping that its constraining effect would purify dirty business practices. In reality, codification has afforded new types of opportunism and eliminated society’s ability to control opportunism through informal means, as it had traditionally done. This goes back to Durkheim’s core sociological insight: the existence of an informal basis for formal contracts. Put differently: that formal law, by itself, cannot govern a society. The contemporary problem is this something like, computer code, by itself, cannot govern society.
Hence the title of this post – ethics and algorithms. The distinction between norms and rules is at the heart of ethical behavior at work. Norms and principles, rather than legal standards, are what differentiates ethical from unethical. Put differently, automation runs the risk of entailing moral abdication to the computer code.
To make matters worse, technologists make a moral case for automation. See for instance, this proposal to replace HR departments with algorithms. It starts from moral denunciation that human hiring is discriminatory, and HR departments incompetent. Fueled by such well-crafted moral outrage, a lay audience will gobble up the huge and obvious canard that an algo can seriously assess someone’s expert skills. In fact, more recent evidence suggests that algos can even engage in racially offensive profiling on a level that only seriously racist humans would be capable of. Or get very close to gender discrimination, for that matter.
A challenge to sociology
At the core of moral denunciations like the above lies a dangerous ideology, going back to Adam Smith. The idea, often put forth by social scientists in economics and behavioral economics or psychology, is that social structure is the root of all evil. The business people that have dinner with each other? Surely they are price-fixing. Those traders on the pit? They probably are colluding, otherwise why would they be nice to each other. Taxi drivers? All corrupt, but an app will see them right. This demonization of social structure is a direct challenge to sociology and its ability to see nuances, that is, structures (roles, patterns of ties) that are positive and others that are negative. It is sociologically naïve, false, and dangerous — the equivalent of sociologists thinking that all commercial activity is unethical.
By the same token, sociologists should not demonize automation either. Their challenge is to be able to distinguish between good and bad automation designs. In our paper, Yuval and I identify automation designs that draw creatively on the original social structure of the market (allowing, for instance, for human market makers on the trading floor to take over from the algos in times of crisis). Others call for incorporating reputation mechanisms into algorithmic trading.
In sum, as automation becomes widespread, sociologists face what is probably the biggest challenge to their discipline in more than a century, akin to the move from the village to the city that spawned the birth of their discipline in the 19th C. Markets are being redefined. Economic interaction is shifting online, onto algos. Second Life, that failed and boring video game-like virtual society, is actually happening for real in the stock market and other industries, although with no fancy 3D graphs. Traders have, in effect, created avatars of themselves that are interacting in an invisible limbo, with rules that the HFT entrepreneurs mostly came up with, or shaped through lobbying, and with limited control by the rest of society. It’s this barely-visible world that sociologists need to make visible and problematize.
The bigger societal implications of financial innovations: How the social studies of finance can help illuminate them
June 25, 2015
From Emilio Marti, Cass Business School
I learned more about high-frequency trading from scholars, who do social studies of finance (SSF), than from any other discipline. SSF scholars reconstruct the history of this financial innovation, bring in the perspective of practitioners, take into account and weigh insights from economic theory, and discuss the implications of high-frequency trading for the social construction of liquid markets. So I learned a great deal about whether high-frequency makes the economy more efficient and stable (the short answer: yes for efficiency, no for stability). At the same time, many people are also concerned about how financial markets and financial innovations are transforming the economy and society. Unfortunately, SSF scholars hardly talk about these bigger societal implications. In this post I show why this is a pity, and how SSF scholars could help illuminate these bigger societal implications.
My ideas partly build on a paper, co-authored with Andreas Scherer, on financial regulation and social welfare that is forthcoming in the Academy of Management Review (for an unedited and publicly available version of the paper see SSRN). Our starting point is that existing research shows that the growth of the financial sector is one of the major drivers of income inequality. In the US, investors spend around $528 billion (4% of GDP) for financial services each year (Bogle 2008). These fees feed the super-high wages of some finance employees. In the US, wages from the financial sector account for 25% of the rising GDP share of the top 0.1% (Bakija et al. 2012). For the UK between 1998 and 2008, super-high wages from the “City” account for 60% of the rise in income among the top 1% (Bell and Van Reenen 2010).
What is puzzling, however, is why investors (both private and institutional) are willing to spend so much on financial services. Indeed, over the past 50 years (back to Fama 1970), financial economists have consistently shown that low-fee/passive investment solutions make more sense for most investors, compared to the high-fee/active investment solutions that most investors end up buying. Kenneth French (2008), in his presidential address to the American Finance Association, speaks of “a futile search for superior returns” in which investors lose an average of 0.67% of return per year.
In our paper, we argue that financial innovations such as high-frequency trading may help why financial service firms can sell so many high-fee products. Financial innovations keep financial markets in a constant state of flux, thereby creating new opportunities and threats for investors. For example, some ten years ago, many investors saw mortgage backed securities as an excellent opportunity that they would miss with a passive investment strategy. Today, many investors perceive high-frequency trading as a threat and they seek “active” help from dark-pool providers and algorithm developers to fend off “predatory” high-frequency traders (Foresight 2011). By keeping financial markets in a constant state of flux, financial innovations allow financial services firms to showcase their expertise and to sustain demand for their services.
We argue that researchers from different disciplines should further explore whether financial innovations help sustain the growth of the financial system and, if so, how. And I think that the SSF could contribute to this endeavor in important ways. At the moment, however, SSF scholars rarely connect their studies of the emergence of new financial tools and practices to broader questions about the size of the financial system. Indeed, as Philip Roscoe notes in a 2010 post on this blog: “There is not, as far as I’m aware, any surprise registered in Donald MacKenzie’s work – or Yuval’s or Daniel’s – that derivative markets exist at all.” This narrow focus relates to the fact that SSF scholars mostly analyze how sell side people and brokers interact with each other.
Who is missing? The buy side! Investors! They are the customers of financial service firms and they pump hundreds of billions into the financial sector each year (as mentioned, $528 billion for the US alone) in what French (2008) describes as a “negative sum game.” Here, SSF scholars should follow the money. This would require that SSF scholars extend their focus and also include the buy side into their analysis. So far, SSF scholars have at most studied retail clients (see Poon 2009), but ignored big investors and the fee streams they generate. Specifically, I would be highly interested to learn how new tools help financial service firms sell ever new products. With this, SSF scholars could start to explore how financial innovations and the tools they produce contribute to the growth of the financial sector.
Ultimately, these ideas link back to the debate about whether the SSF are merely, as Karel Williams formulated it, “nerdish case studies” that neglect the “political” dimension of what is going on around financial markets (see Daniel’s 2010 post). I think that taking into account how tools shape the interaction between the buy and sell side would preserve the distinct SSF approach – ethnographic studies focused on tools – while producing insights that are relevant for the broader community of scholars interested in how financial markets are transforming the economy and society.