The Index Revolution by Charles D. Ellis

Author:Charles D. Ellis
Language: eng
Format: epub
ISBN: 9781119313083
Publisher: Wiley
Published: 2016-09-01T00:00:00+00:00

Investment research from major securities firms in all the major markets around the world, produced by expert analysts of companies and industries, economists, political analysts, demographers, and geologists, amounts to an enormous volume of useful information. It is distributed almost instantly via the Internet to hundreds of thousands of analysts and portfolio managers who work in fast-response decision-making organizations worldwide.

Competitors of all sorts and sizes all over the world operate out of vast trading rooms dominated by many large computer screens displaying multiple instantaneous data feeds processed by commercial and proprietary computer programs.

Bloomberg machines, unheard of 50 years ago, now number over 320,000 and spew unlimited market and economic data virtually 24 hours a day.

The population of CFAs (Chartered Financial Analysts) has gone from zero 50 years ago to 135,000, with over 200,000 more in the queue studying for the tough annual exams where pass rates are less than 60 percent.

Algorithmic trading, computer models, and corps of inventive “quants” (quantitative analysts) were unheard of years ago. Today, they are major market participants.

The Internet, e-mail, and blast faxes have created a revolution in global communications: instantaneous, worldwide, and accessible 24/7. We really are all in this together.

National securities markets, once isolated, are increasingly integrated into one nearly seamless global megamarket operating around the clock and around the world. And this megamarket is increasingly integrating with and transforming bond markets and currency markets as well as the major markets for such commodities as oil, gold, and wheat.

Regulations have changed to ensure simultaneous disclosure to all investors of all potentially important investment information. Since 2000 in the United States, the Securities and Exchange Commission’s Regulation FD (Fair Disclosure) has required that any significant corporate information be made simultaneously available to all investors. (Years ago, such information—when proprietary—was central to successful active investing.) Regulation FD is a game “changer” that has effectively commoditized investment information from corporations.

Hedge funds, acquisitive corporations, activist investors, and private equity funds have all—with different perspectives and different objectives—become major participants in price discovery in today’s securities markets, now the world’s largest and most active prediction market.

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