FDx Advisors Blog

Investment research insights from the 2013 IMCA annual conference

July 9, 2013 Written by John Parsons

The team of analysts at FDx Advisors investment research group – a subsidiary of FolioDynamix – represents a deep and diverse set of education  backgrounds and career experiences. To ensure we stay on the leading edge, FDx Advisors analysts are encouraged to expand industry knowledge by pursuing credentials from leading investment industry organizations. One such designation is the Certified Investment Management Analyst (CIMA®) certification, sponsored by the Investment Management Consultants Association (IMCA).

One way CIMA holders can obtain continuing education (CE) credit is by attending IMCA conferences, offered at various cities across the country throughout the year. The largest of these conferences is the IMCA Annual Conference held each spring. In fact, the IMCA Annual Conference is the largest association gathering of investment advisors and private wealth management professionals in the United States.

As a CIMA holder, I attended this year’s IMCA Annual Conference, held recently at the Washington State Convention Center in Seattle, WA. The event spanned two-and-a-half days, and included an array of educational topics, as wells as networking opportunities with investment advisor peers and investment management firm representatives. The larger general sessions touched on a variety of subjects, and included speakers such as Meredith Whitney, who provided her insights into the current economic environment; behavioral finance expert, Meir Statman, PhD; and Nassim Nicholas Taleb, PhD, best-selling author of “The Black Swan” and “Fooled by Randomness.”

One session that I found particularly intriguing discussed the increased prevalence of high-frequency trading in the U.S. equity markets. The increase in high-frequency trading  is especially noteworthy considering the recent anniversary of the 2010 Flash Crash, which saw an intraday point swing in the Dow Jones Industrial Average of nearly 1,000 points. Yacine Aït-Sahalia, PhD, from the Bendheim Center for Finance, Princeton University, presented background information on the technological developments over the last couple of decades that have enabled the implementation of high-frequency trading algorithms that attempt to take advantage of certain market scenarios. Some are even designed to intercept information from electronic news feeds, make strategic decisions with respect to trade execution, and submit or cancel trade orders. This is done without human intervention, and all within a few milliseconds. It was noted that when high-frequency traders buy from low-frequency traders, the next price movement will be an uptick with probability of about two-thirds, and that overall, high-frequency traders appear to systematically beat the odds with a winning percentage above 50%.

The potential for generating market panics and other implications for misuse will position high-frequency trading at the center of policy debates and controversies for the foreseeable future. Nevertheless, high-frequency traders seem to benefit the market by providing increased liquidity and market efficiency, and are reflective of an innovative industry that is moving ever forward. With proper safeguards and regulatory oversight the inherent risk of occurrences like the Flash Crash can be minimized, and the value provided to the market by high-frequency trading preserved. We’ll definitely be keeping out eye on this trend and monitoring its impact on the markets.

If you’re looking to expand your current investment research base or augment your research team, contact FDx Advisors today to get started.

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