Trading: Hot topics for my thesis?

Hi together,

First of all happy new year to all of you. I am currently looking for a subject for my thesis and I would love to do something trading related. It is not so much the research focus of my prof but he is fine with me suggesting him a topic for my “trading-thesis”. So, now it is up to me. Here is a short list with some topics: Financial innovations, e.g. volatility as an asset class, trading strategies, risk premium development,...As you might have noticed, I really have difficulties to find something that’s really trading and not products or asset management. Now my question to you:

  • What are hot topics out there on the trading desks? It would be great to get your opinion or suggestions.

  • What would you be interested in reading on a candidates CV as a topic of his/her thesis?

Thanks in advance,

Anira

 
LongShotTrader:
Dispersion trading...it involves some complex math, few firms do it, and it would definitely catch volatility traders' eyes if you had it on your CV.
why would you think that few firms do it? i know of at least 5 off the top of my head, and i'm sure there's many more i haven't heard of.
 

i didnt mean 3 or 4 only, but it is not as widespread as other products/strategies...also, a top BB dispersion trader mentioned that ( he's the only one in the NY office for this firm vs 6+ traders for most other products).

 
Best Response

if you do not want to do it on a product or Asset Management and really want to do something more related to trading you still need to figure out what product you want to be discussing because different products have different issues.

In equity the big issues are the rise of algorithmic trading, the hybrid system of both specialist and electronic, basically anything involving liquidity and or price discovery.

In CDS you have the issue of getting their own centralized exchange.

In all products I have seen a shift away from the more outright directional bets and a larger and larger focus on arbitrage and its many forms.

I did my thesis on the the financial crisis of 2008 how financial friction was the leading cause of having an isolated incident of subprime spreading to the economy as a whole.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

leave out anything quant related leave strategies to structurers if you want to impress anything to do with behavioural finance, especially how fear plays out in cap mkts.

 

My adviser did not really buy into much of the psychological factors such as fear so I had to stick to things I could quantify or at least back up with data.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

the speculators in the equity market have changed and their behaviors modified as a result of the credit crisis. there are fewer hedge funds and they are taking less risk. they have less capital due to redemption and losses and have less access to leverage.

an interesting read for me would a study of liquidity, volume, and realized volatility over the past year, specifically since september 08 - trying to answer the question: how has the change in speculator behavior translated into observables in the market?

once you figure out that, you can think about how to position for it.

 

I think thats a fantastic question and had my adviser not been such an academic that believed every single price jerk is related to news or information I would have done it myself.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 
indian-banker:
Yeah, I hate it when people always associate a change in the market with some sort of news or investor view. CNBC has a terrible habit of doing that. CNBC simply does not acknowledge technical, statistical and mathematical factors that drive the market.

that's because statistical and mathematical factors do not drive the market. people buying and selling do.

i work in a much less liquid market than equities, so i'd be interested in hearing people's opinions: do you think the incessant noise in the equity markets is due to quant funds trading off their black boxes?

 

But remember people make their buying and selling decisions based off some anchor a la technical analysis. Its much much more prevalent in more liquid markets obviously.

Great question regarding the noise and I would love to hear others opinion on this.

Yeah I would agree that the noise comes from the black boxes and program trading algos competing against each other. Also think its from and from inexperienced traders getting their stops picked off. Seems like there is constantly overshooting in equity markets in attempt to pick off as many stops as possible and it results in a jerky trading motion. The more noise the more difficult it is to trade in the short term also.

In the more thinly traded names you basically have a bunch of algorithms fighting against each other. You have a buyer who refuses to pay over a certain amount and you have a seller that wont accept less than a given amount but they ultimately want to get their orders done and will play games with each other to try and find the liquidity.

Trying to find liquidity when you are the biggest player in a thin traded name is like a poker/chess match. I really enjoyed that aspect of trading.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

The buying and selling is driven to a certain extent by technical factors. I understand that at times, headline news will drive the market in one way or the other but sometimes it's just that the statistical model or technical indicator on my screen shows that it's better to sell/buy now. In commodities trading, supply/demand fundamentals are barely looked at and the reason why the prices for oil moved most certainly did not correlate with what the news reporters claimed (investors are looking for stocks instead of oil, or investors are unloading positions to invest in treasuries etc). More often than not, it is just flow trade with someone dumping oil because their storage costs had gone up or some technical indicator suggesting that the peak was up and it was time to sell and buy at some other time or there was no ship available to transport the oil asap according to some needs. Investing has to do with people taking a certain view, but market movements by the day is most certainly not investing but rather trading.

 

what lot of the people above are referring to falls under microstructure. it's definitely a hot area for research, but you run the risk of things getting very complicated very fast. don't claim you have a strategy with a positive risk-adjusted return unless you want to get grilled during an interview and possibly laughed at by everyone. personally, i would do something a lot more qualitative (i.e. no real math) as it leaves less room to fuck up, is easier to talk about in interviews, and it appeals to a much broader audience (l/s hfs, banks, etc..)

some literature:

http://www1.fee.uva.nl/fm/Conference/jfi2001/Reviewfaj4.doc http://www.amazon.com/Trading-Exchanges-Market-Microstructure-Practitio… http://www.amazon.com/Exchange-Automation-Management-Regulation-Financi… http://www.amazon.com/Market-Microstructure-Theory-Maureen-OHara/dp/063… http://www.amazon.com/Empirical-Market-Microstructure-Institutions-Econ… http://www.amazon.com/Analysis-Financial-Wiley-Probability-Statistics/d… http://www.amazon.com/Market-Models-Guide-Financial-Analysis/dp/0471899…

 

The topic should be for my master thesis. Ideally it could also be used for a PHD, which I hope to do directly after the master/after an internship in S&T I hope to do after the thesis (its a bit different system in Germany: you "just" have to write a second (of course more demanding and more scientific, etc.) thesis to get your PHD).

Have a nice week,

Anira

 

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