Postgraduate Course: Modelling, High-Frequency Trading and the Sociology of Finance (SCIL11039)
Course Outline
| School | School of Social and Political Science |
College | College of Arts, Humanities and Social Sciences |
| Credit level (Normal year taken) | SCQF Level 11 (Postgraduate) |
Availability | Not available to visiting students |
| SCQF Credits | 10 |
ECTS Credits | 5 |
| Summary | Financial markets have been transformed radically since the 1970s, first by the widespread use of mathematical models, and then by fully automated, 'ultrafast high-frequency trading' or HFT. This course examines modelling and HFT from an economic-sociology viewpoint. |
| Course description |
The course will begin by introducing students to major perspectives in economic sociology, especially those (such as the work of Michel Callon) that draw also on the sociology of science and technology. For pedagogic reasons, high-frequency trading will be discussed first (because it will be simpler for students to understand) and mathematical modelling second. Each of those two sections will consist of two sessions with a lecture format and a third session with a seminar format.
Session 1: Economic sociology and high-frequency trading
This session will introduce students to relevant ideas from economic sociology, and begin the empirical examination of HFT by discussing the hugely influential 1990s' electronic share-trading venue, Island, and the subsequent changes in how shares and other liquid financial instruments are traded. Students will have been encouraged to read Michael Lewis, Flash Boys, prior to this session: although Lewis's analysis is problematic, the book will help them gain an introductory understanding of HFT.
Session 2: High-frequency trading and its 'signals'
This session will delve more deeply into the material practices of HFT, focussing on the 'signals' employed by HFT algorithms, i.e. the data patterns that lead them to place bids to buy or offers to sell (or to cancel existing bids and offers). The session will examine the histories of the main signals used in the high-frequency trading of US shares, connecting those histories to themes in economic sociology.
Session 3: Seminar on high-frequency trading
The first two sessions will be based primarily on the research of the course teacher, Donald MacKenzie. In this session, students will give presentations critically assessing other contributions to the literature on HFT.
Session 4: 'Performativity' and the case of option pricing
This session will introduce students to the idea that mathematical models in financial markets are sometimes 'performative': they affect those markets, rather than simply serving as representations of them. The idea will be explored via the case that has been examined in most detail, Black-Scholes option pricing.
Session 5: Models and the global financial crisis
This session will examine the role of models (especially the Gaussian copula) in the 2007-8 global financial crisis.
Session 6: Seminar on models
Again, this session will enable students to explore literature wider than that underpinning sessions 4 and 5.
The student learning experience will combine lectures conveying key ideas and empirical information with independent reading (and seminar presentation/blog-type posts).
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Entry Requirements (not applicable to Visiting Students)
| Pre-requisites |
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Co-requisites | |
| Prohibited Combinations | |
Other requirements | None |
Course Delivery Information
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| Academic year 2019/20, Not available to visiting students (SS1)
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Quota: None |
| Course Start |
Semester 2 |
Timetable |
Timetable |
| Learning and Teaching activities (Further Info) |
Total Hours:
100
(
Programme Level Learning and Teaching Hours 2,
Directed Learning and Independent Learning Hours
98 )
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| Assessment (Further Info) |
Written Exam
0 %,
Coursework
100 %,
Practical Exam
0 %
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| Additional Information (Assessment) |
800-word 'blog-style' presentation and assessment of an important academic article applying ideas from economic sociology to financial markets (formative).
2,000-word essay discussing either high-frequency trading or financial modelling from an economic-sociology viewpoint (100% of mark for course).
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| Feedback |
Students will receive informal verbal feedback on their seminar presentations. The chief goal of this feedback will be to ensure that students understand what social-science academic analyses of financial markets are seeking to achieve and what it is critically to assess their success in achieving it.
Feedback on the first written requirement of the course (the 800-word presentation/assessment, with a deadline during the course) will also be formative, but in this case will be provided in written form; again, a major goal will be to ensure students understand social-science analysis. The reasons for this being a formative rather than assessed item are a) to encourage circulation and discussion among students of these blog-style postings and b) to permit feedback on it to be given as quickly as possible, with a view to making it maximally helpful to students in the writing of the longer essay.
The 2,000-word final assessed essay (on which written feedback will of course also be provided) will test students' success in achieving the learning outcomes of the course.
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| No Exam Information |
Learning Outcomes
On completion of this course, the student will be able to:
- Make sophisticated empirical use of theoretical positions in economic sociology
- Understand (at a broad level) the material practices of high-frequency trading
- Have an advanced understanding of how HFT practices can be analysed using ideas from economic sociology
- Understand (at a broad level) how mathematical models are applied in finance, especially to the pricing of financial derivatives
- Have an advanced understanding of how modelling practices and their effects can be analysed using ideas from economic sociology
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Reading List
Beunza, Daniel, and David Stark. 2012. "From Dissonance to Resonance: Cognitive Interdependence in Quantitative Finance." Economy and Society 41(3):335-59.
Borch, Christian, Kristian Bondo Hansen, and Ann-Christina Lange. 2015. "Markets, Bodies, and Rhythms: A Rhythmanalysis of Financial Markets from Open-Outcry Trading to High-Frequency Trading." Environment and Planning D: Society and Space 33(6):1080-97.
Borch, Christian. 2017. "High-Frequency Trading, Algorithmic Finance and the Flash Crash: Reflections on Eventualization." Economy and Society Early online.
Borch, Christian, and Ann-Christina Lange. 2016. "High-Frequency Trader Subjectivity: Emotional Attachment and Discipline in an Era of Algorithms." Socio-Economic Review Early online.
Callon, Michel (Ed.). 1998. The Laws of the Markets. Oxford: Blackwell.
. 2007. "What does it mean to say that Economics is Performative?" Pp. 311-57 in Do Economists Make Markets? On the Performativity of Economics, edited by Donald MacKenzie, Fabian Muniesa, and Lucia Siu. Princeton, NJ: Princeton University Press.
Callon, Michel, and Fabian Muniesa. 2005. "Economic Markets as Calculative Collective Devices." Organization Studies 26(8):1229-50.
Fligstein, Neil. 2001. The Architecture of Markets. Princeton, NJ: Princeton University Press.
Fligstein, Neil, and Doug McAdam. 2012. A Theory of Fields. Oxford: Oxford University Press.
Granovetter, Mark. 1985. "Economic Action and Social Structure: The Problem of Embeddedness." American Journal of Sociology 91(3):485-510.
Kluttz, Daniel N., and Neil Fligstein. 2016. "Varieties of Sociological Field Theory." Pp. 185-204 in Handbook of Contemporary Sociological Theory, edited by Seth Abrutyn. Basel: Springer.
Knorr Cetina, Karin, and Urs Bruegger. 2002a. "Global Microstructures: The Virtual Societies of Financial Markets." American Journal of Sociology 107(4):905-51.
. 2002b. "Traders' Engagement with Markets: A Postsocial Relationship." Theory, Culture and Society 19(5-6):161-85.
Krippner, Greta R. 2001. "The Elusive Market: Embeddedness and the Paradigm of Economic Sociology." Theory and Society 30(6):775-810.
Lange, Ann-Christina. 2016. "Organizational Ignorance: An Ethnographic Study of High-Frequency Trading." Economy and Society:early online.
Lewis, Michael. 2014. Flash Boys: Cracking the Money Code. London: Penguin.
MacKenzie, Donald. 2006. An Engine, not a Camera: How Financial Models Shape Markets. Cambridge, MA: MIT Press.
. 2011. "The Credit Crisis as a Problem in the Sociology of Knowledge." American Journal of Sociology 116:1778-841.
. 2015. "Mechanizing the Merc: The Chicago Mercantile Exchange and the Rise of High-Frequency Trading." Technology and Culture 56(3):646-75.
. 2017a. "A Material Political Economy: Automated Trading Desk and Price Prediction in High-Frequency Trading." Social Studies of Science 47(2):172-194.
. 2017b. "Capital's Geodesic: Chicago, New Jersey, and the Material Sociology of Speed." Pp. 55-71 in The Sociology of Speed: Digital, Organizational, and Social Temporalities, edited by Judy Wajcman and Nigel Dodd. Oxford: Oxford University Press.
MacKenzie, Donald, Fabian Muniesa, and Lucia Siu (Eds.). 2007. Do Economists Make Markets? On the Performativity of Economics. Princeton, NJ: Princeton University Press.
MacKenzie, Donald, and Juan Pablo Pardo-Guerra. 2014. "Insurgent Capitalism: Island, Bricolage and the Re-Making of Finance." Economy and Society 43(2):153-82.
MacKenzie, Donald, and Taylor Spears. 2014a. "'The Formula That Killed Wall Street': The Gaussian Copula and Modelling Practices in Investment Banking." Social Studies of Science 44(3):393-417.
. 2014b. "'A Device for Being Able to Book P&L': The Organizational Embedding of the Gaussian Copula." Social Studies of Science 44(3):418-40.
Muniesa, Fabian. 2014. The Provoked Economy: Economic Reality and the Performative Turn. London: Routledge.
Seyfert, Robert. 2016. "Bugs, Predations or Manipulations? Incompatible Epistemic Regimes of High-Frequency Trading." Economy and Society:Early online.
Seyfert, Robert, and Jonathan Roberge (Eds.). 2016. Algorithmic Cultures: Essays on Meaning, Performance and New Technologies. London: Routledge.
Zaloom, Caitlin. 2006. Out of the Pits: Trading and Technology from Chicago to London. Chicago: Chicago University Press.
Zelizer, Viviana A. 2005. The Purchase of Intimacy. Princeton, NJ: Princeton University Press.
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Additional Information
| Graduate Attributes and Skills |
The course will provide those who take it with a critical understanding of the main social-science theories and concepts that can be applied to the practices of modelling in finance and of high-frequency trading. Students will be able to demonstrate their acquisition of knowledge that covers and integrates the full scope of social-science understandings of these topics, and will be able to show that they can work autonomously in this area and communicate effectively at a very high level about it. Given the specialised nature of the subject matter, students will also have shown that they have the capacity quickly to grasp difficult topics, to plan their work effectively, and reach informed judgements in a situation in which information is still far from complete.
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| Keywords | Not entered |
Contacts
| Course organiser | Prof Donald MacKenzie
Tel: (0131 6)50 3980
Email: D.Mackenzie@ed.ac.uk |
Course secretary | Mrs Gillian MacDonald
Tel: (0131 6)51 3244
Email: gillian.macdonald@ed.ac.uk |
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