U.S. stock markets are rigged, says author Michael Lewis

Re:U.S. stock markets are rigged, says author Michael Lewis by murbard2 on Monday March 31, 2014 @07:20AM (#7500732)

My favorite solution to the breakdown of correlation is to have order books for beta adjusted prices. That is, you don't bid for Google stocks, you bid for a Google stock minus an equivalent amount of S&P. The price of this pair is much more stable than the price of Google, which means spreads can be tighter.

The nuttier generalization would be to have an order book for each principal component of the covariance matrix of the market. It wouldn't work in practice for a variety of reason (least of which is that the covariance matrix is unstable, ill defined, etc) but it's a good thought experiment to understand the problem.

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Re:U.S. stock markets are rigged, says author Michael Lewis by tdaltonc on Monday March 31, 2014 @10:14AM (#7501553)

This is an interesting idea. For this to impact market correlation, would you need to insist that everyone place their orders in beta adjusted terms or would it be enough for the bid making protocol to allow for it?

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Re:U.S. stock markets are rigged, says author Michael Lewis by murbard2 on Monday March 31, 2014 @10:20AM (#7501593)

Allowing it is enough, and you could populate it initially by deriving quote from the other books. The CME does it for futures.

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