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In northern California, the diluvian deluge continues, though thankfully nature has been gentle rather than torrential. Snow is falling at 1,200 feet today—radically low for us—and we could have snowball fights just fifteen minutes up the hill from downtown Roseville.
In the markets, what a wild last week. Volumes Wednesday January 24th boggled the mind—and they weren't driven by fundamental investors executing buys and sells. So let's talk briefly today about global statistical arbitrage and what it means from (or to) the comfort of your IR chair.
We've written before on this, but have you wondered why on one day Asian investors cheer US Federal Reserve policy and the next, jeer it? Or why European investors one day zig with US markets and another, zag inversely against them? Market observers and 24-hour news churners often attribute these curious, seemingly bipolar activities to juking and jiving investor sentiment: "Markets rebounded today on renewed enthusiasm over Fed policy…"
You've seen it, right? Well, we submit that most of the time it's no such thing, but instead, global statistical arbitrage, or in the simplest of all terms, the efforts by traders to take advantage of minute speed, time-zone and informational inefficiencies at various planetary market entry points.
Why should you care, there in the IR chair? (That rhyme would work well in an official investor relations ditty.) One big reason, so you have answers when your execs and board members wonder why investors are selling shares of a business with outstanding fundamentals and economically resilient drivers.
How to reach answers? Watch the NATURE of the participants in your market, whether you're listed on the Nasdaq or the NYSE (both give you the means to do this). Note the trading activity of firms in context of global daily ups and downs. If the big Prime brokers, anonymous platforms and well-known arbitrage systems like Lime Brokerage, and ITG and Pulse Trading and on it goes, play dominating roles in your marketplace and lead your stock up and down…odds are, you're largely a reflection of macroeconomic factors.
We're simplifying of course. And, really, answers and knowledge can be remarkably precise, given the anonymous nature of today's markets. Yes, it takes a little time, a bit of education…but you can increase your influence. We believe IROs have the capacity to exercise more influence now than ever.
Then sometimes, you must remind the hand-wringers that it's best, to use what may seem a mixed metaphor, to allow smoke to clear before opening fire.
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Our weekly Market Structure Map provides unique insights — free — on trading markets, with an exclusive focus on helping investor-relations professionals keep cool in the IR chair.
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