Stock market crashes are caused by people.Self-fulfilling prophecy) However, other possibilities should also be considered.
Why do prices suddenly plummet?
To put it bluntly,QuantAlgorithmic trading by computer experts (humans), also known as "algorithmic trading," may be playing a role.
What exactly is a quantitative analyst? Automated trading is advancing.
QuantThe term "mathematical analyst" is derived from "quantitative" and refers to a specialist in mathematical analysis who uses advanced mathematics and physics to analyze and forecast market trends and corporate performance, and to develop and devise investment strategies and financial products.
Robot tradingAutomated trading (i.e., automated trading by robots without human intervention) is becoming increasingly important.
Even Goldman Sachs, the top-tier investment bank famous for its average annual salary of 60 million yen (!), seems to be using automated trading now. A quick search reveals articles like this one.
Goldman Sachs, which had 600 traders...The rapid advancement of automated stock trading for two people
quotation According to Marty Chavez, the company's deputy chief financial officer, the number of traders has dropped from a peak of 600 in 2000 to just two today. Stock trading is now conducted by automated trading programs, and the company employs 200 computer engineers to replace human traders. (excite newsGoldman Sachs reduces its trader workforce from 600 to 2 amid rapid automation of stock trading.(Quoted from ')
Also,This English articleHowever, it seems that one-third of their employees (9,000 people) are computer engineers. At this point, they're practically indistinguishable from Google.The times have changed so that there are no longer people buying and selling stocks; instead, mathematical and computer geniuses are creating programs to do the buying and selling.
Robot trading has become so common that there are even books like this aimed at individual traders (though I think they're more for semi-professionals).
The mechanism by which machines cause stock market crashes
Let's assume that companies A, B, C, ... up to Z, a total of 26 companies, are using computer-based automated trading, and that these computers are operating based on a certain algorithm.
For example, the stock price of the NY Dow,
- Company A's algorithm → Sell if price drops $100
- Company B's algorithm → Sell if price drops $200
- Company C's algorithm → Sell if price drops $150
- Company D's algorithm → Sell if price drops $400
- E Company's algorithm → $300
- Ｆ
- G...to be continued
Of course, if you sell stocks, the stock price will fall. So, the computer makes an instant decision and sells the stocks. Then the stock price falls...
Now, what happens when this algorithm continues in a chain reaction? Well, this is what happens: ↓
Moreover, because they are robots, they sell off stocks in an instant. It's like one bomb igniting another.Mechanism of a market crashThis is the result.
Similar things can happen to humans as well.
Stock market crashes occur when people's thoughts (predictions) spread, triggering a chain reaction, as follows:Self-fulfilling prophecy) There are aspects that do this.
- Stock prices may fall for some reason.
- (Even if it's not actually the case) people tend to assume the economy is going down.
- (Each individual) refrains from buying
- Consumption is falling.
- Sales actually decline
- The economy will worsen (this will actually happen)
The coronavirus hoax also caused toilet paper to run out.Self-fulfilling prophecyThis is related.This incident proved that people's thoughts (anxieties) can spread rapidly and have the power to change society.
We are developing a computer that can read people's minds.
Incredibly, the Nobel Foundation has partnered with a hedge fund called Two Sigma Investments.※They've invested in this and are apparently developing a computer that can understand people's minds (a computer that can read people's thoughts and trade accordingly)!
*A fund is a system that invests funds collected from investors, pursues profits, and distributes them.
quotation Two Sigma Investments is one of the world's top five hedge funds. It excels in quantitative (quantitative) investment using artificial intelligence (AI), and has consistently achieved strong results for many years while other funds have struggled. In 2018, it opened a Tokyo office to expand its business.(YUCASEE media57% return, $750 million in compensation: Two Sigma, the rising star hedge fund [Hedge Fund Manager Chronicles #3](Quoted from...)
AI (machines) running amok and development
While there are many movies about AI (machines) going rogue and dominating humanity, in reality, AI (machines) was causing stock market crashes.
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