Man vs. Machine on Wall Street: How Computers Beat the Market – Business – The Atlantic

Although predictions of the death of AQR and its ilk, by the writer and investor Nassim Taleb, among others, turned out to have been greatly exaggerated, worries linger, even as some high-profile quants have surged back. Taleb and the other critics think their overreliance on computers gives quants excessive confidence and blinds them to the possibility of seemingly rare economic catastrophes–which seem to be not so rare these days. (This was the theme of Taleb’s best-selling book, The Black Swan, which examined the effect of the "highly ‚Ä®improbable" on markets, and on life.) As Exhibit A, they point to the extraordinary events of May 6, 2010, when the Dow dropped by nearly 1,000 points in a few minutes after an algorithmic program executed by the investment firm Waddell & Reed, in Kansas, triggered a terrifying blitz of automated buying and selling by other financial computers. The market quickly recovered, but many worry that the episode was a preview of greater turbulence ahead as machines gain control of more and more trading.

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