Some Must-Read Summer Reading For Ye

who gets what


AAPL’s stock price this morning notwithstanding, this 2015 stock market might be the most boring ever. The indexes are trading tight, volumes are light, and we are near all-time highs. We are all fairly complacent, and it even shows in “market structure surveys” being brandied about like SOMA, to remind us to “Don’t Worry – Be Happy.”

From where we sit at Themis Trading, this is an excellent time to be thinking about the structure of our modern markets – while times are benign. With this in mind, we have a most excellent book we want to recommend to all of you; it’s titled Who Gets What – And Why; The New Economics of Matchmaking and Market Design. It is written by Nobel Prize Winner, Alvin Roth, and it is simply, a book that should be bumped to the front of the queue in your reading lists. I want to Thank Harry P. in Orinda for recommending the book to me.

Roth helps us think about what markets are for – allocating resources. He distinguishes between Commodity Markets – where price does all the work, and Matching Markets. Roth notes that the first order of business of any market is having a lot of participants, and making it thick. However, he also warns of congestion in markets, because:

“although it’s great to have a marketplace that gives you an abundance of opportunities, these may be illusory if you can’t evaluate them, and they can cause the market to lose much of its usefulness. Think of an internet dating site on which women with appealing photos receive far more messages than they can answer, and men find that very few of their messages draw responses.”

Roth also has examined our own financial markets, and he devotes a section of the book, titled Too Fast – The Greed for Speed to their discussion:

“Speed can make a market thrive, or it can tear it apart. Speed helps participants in a thick market to evaluate and process lots of potential transactions quickly. But sometimes making markets work faster also makes them work worse.”

As I devoured this book I couldn’t help but think that we long ago speedily achieved an important prerequisite for a successful stock market – making it “thick” with numerous and diverse participants. I also couldn’t help but ponder that at some point we should have stopped right there, as we have added numerous “innovations” that have made our markets congested, with too much intermediation between natural buyers and sellers.

This book is a glimpse at markets, their purpose, their formation and functioning, and their evolution. I would share more excerpts, but you really owe it to yourselves to read the book with no filters. It’s a big-picture book, by a thought-leader, and we hope you enjoy it, either on the train, at your trading desks, or on the beach.