Nerds on Wall Street: Math, Machines, and Wired Markets

Nerds on Wall Street: Math, Machines, and Wired Markets

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by David J. Leinweber

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Technology has transformed global markets, but this is nothing new. Markets have been shaped by machinery for hundreds of years, and this continues at a rapid pace today.

Author David Leinweber-a computer scientist who accidentally stumbled upon Wall Street and became an innovator in the application of modern information technology in trading and investing-is a

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Technology has transformed global markets, but this is nothing new. Markets have been shaped by machinery for hundreds of years, and this continues at a rapid pace today.

Author David Leinweber-a computer scientist who accidentally stumbled upon Wall Street and became an innovator in the application of modern information technology in trading and investing-is a well-qualified guide to the nerds of greater Wall Street. And now, in this engaging and entertaining new book, he tells the tale of the ongoing technological transformation of the world's financial markets.

The impact of technology on investing is profound, and Leinweber provides an intriguing look at where technology on Wall Street has been, what it has meant, and how it will impact the markets of tomorrow, and its role in the multifaceted crises of today. In essence, the financial game has changed and will continue to change due entirely to technology. Throughout these pages, Leinweber takes a detailed look at the new "players," human or otherwise, that offer both unprecedented opportunities and debilitating dangers in this ever-evolving environment.

Divided into four parts, this lively exploration of markets and machines:

  • Illustrates the history of technology upheavals in markets and deals with electronic markets and algorithmic trading in Part One: Wired Markets
  • Explores the use of wired markets, and anything else you can find, to outperform market averages in Part Two: Alpha as Life
  • Examines how humans and machines can work together to extract useful information for investment and trading from textual sources in Part Three: Artificial Intelligence and Intelligence Amplification
  • Considers the roles of technology in contributing to the crisis of 2008, as well as its use to avoid future mishaps in Part Four (Epilogue): Nerds Gone Wild? Wired Markets in Distress

Being a successful investor-whether individual or institutional-involves more than stock picking, asset allocation, or market timing: it involves technology. And through this story, Leinweber helps you go beyond the numbers to see exactly how advanced technology has become a bigger part of modern markets.

It's getting harder every day to see the difference between financial markets and computer networks. Hopefully, after reading this book, you'll have a better sense of how technology shapes today's markets, and how to best participate in the future of electronic finance.

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Editorial Reviews

From the Publisher
Praise for Nerds On Wall Street

"Leinweber leads his readers through a largely unexploredforest, turning over ordinary-looking rocks to reveal hiddencolonies of peculiar creatures that feed on moldering mounds ofnumbers teeming with trailing zeroes. His book is absorbing,instructive, and very, very funny."
David Shaw, Founder, D. E. Shaw & Co.

"David Leinweber has been a pioneer in developing and applyingadvanced technologies in the capital markets. This book is avirtual tour de force survey of many of the key innovations overthe past two decades, with key insights for the future. It is ahighly engaging, insightful, and entertaining book for allinvestors who want to understand the increasingly important role oftechnology in the financial markets."
Blake Grossman, CEO, Barclays Global Investors

"Leinweber isn't half as crazy as people said! He foresaw theprofound change that wired technology would bring to markets(robots trading millions of shares in six milliseconds). Now henails the Stupid Financial Engineering Tricks that dumped themarkets, and offers his patented, sound insights on how the nerdswill help bring us back."
Jane Bryant Quinn, Financial columnist, and Newsweek

"Through the lenses of finance 'nerds,' Dave Leinweber recountsthe quantitative and technological revolution in equity trading.The book is humorously written but it is serious and insightful. Itmakes an important contribution to our understanding of financialinnovation and the evolution of the capital markets."
Andre F. Perold, George Gund Professor of Finance andBanking, Harvard Business School

"Finally, a book that rightly honors the pocket-protected,RPN-loving, object-oriented, C-compatible, self-similar Wall Streetquant! This is a delightfully entertaining romp across the tradingfloors and through the research departments of major financialinstitutions, told by one of the early architects of automatedtrading and a self-made nerd."
Andrew W. Lo, Professor of Finance, MIT Sloan Schoolof Management

"David Leinweber is one of the great financial innovators of ourtime. David possesses a unique combination of expertise in thefields of money management, artificial intelligence, and computerscience."
Blair Hull, Founder, Hull Trading & MatlockTrading

"An important, accessible, and humorous guide to today'selectronic markets. Like Capital Ideas mixed with Being Digital, astold by Steve Martin."
Frank Fabozzi, Yale School of Management, Editor,Journal of Portfolio Management

"Slicing and dicing data to predict the future can get dicey.The Super Bowl market indicator holds that stocks will do wellafter a team from the old National Football League wins the SuperBowl. . . The "Sell in May and go away" rule advises investors toget out of the market after April and get back in after October. .. hundreds — of Web sites hawk "proprietary trading tools" andanalytical "models" . . . There is no end to such rules. But thereisn't much sense to most of them either. An entertaining new book,"Nerds on Wall Street," by the veteran quantitative money managerDavid Leinweber, dissects the shoddy thinking that underlies mostof these techniques."
Jason Zweig, The Wall Street Journal

"One of the best reads that I have picked up in some time. Itstimulated me about things in the market that I didn't know.... Awonderful book"
Vince Rowe Radium, Biz Radio

"Where technology will take investing and trading in the futureis anyone's guess. Yet, David J. Leinweber in his newly publishedbook, "Nerds on Wall Street: Math, Machines and Wired Markets,"provides a glimpse of the direction. In his lively —alternately raucous and reverent, deriding and respectful —Mr. Leinweber recounts the history of how technology hastransformed investing and trading through the people that developedideas and pioneered applications, most famously in indexing,optimization and quantitative investing. . . The book makes one ofthe best reads of the summer — suitable for the beach as wellas for a serious reader in suit and tie at the office."
—Pensions & Investments

“Explains complex financial instruments in relativelysimple terms, and the same goes for complex trading techniques. . .The average reader will learn a lot here. I recommend the book tothose that want to dig into how the equity markets became morecomputerized.
— Seeking Alpha

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Product Details

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6.30(w) x 9.10(h) x 1.40(d)

What People are saying about this

From the Publisher
Additional Praise for Nerds on Wall Street

"Most new technologies are exploited first by "alpha geeks," thefolks with the skills to push the envelope. This is as true on WallStreet as it was on the web. David Leinweber was one of those alphageeks, but is also the first to chronicle the innovation processfrom early adopter to mainstream acceptance."
Tim O'Reilly, Founder & CEO O'Reilly Media

"Nerds on Wall Street is a thoughtful, funny, andcomprehensive history of the overlooked role geeks have played inour financial markets from the earliest days of telegraph, to riskmanagement systems in the current credit crisis. The book is anirreverent "I Was There" chronicle of how our financial marketswere formed from silicon, savvy and software. Highlyrecommended."
Paul Kedrosky, Infectious Greed, Ten Asset Managementand Kauffman Foundation

"For decades Dave has not only understood more investmenttechnology than anyone, but with patience and a great sense ofhumor, he has made the effort to explain it to his less tech savvyfriends. Nerds on Wall Street is a home run for usall."
Richard Rosenblatt, CEO, Rosenblatt Securities

"Nerds on Wall Street is a wild, funny ride thoughthe technological changes that underpin modern financial markets.You will find yourself laughing out loud at what could otherwise bea dry subject. And, if you’re not careful, you might evenlearn something!"
Richard R. Lindsey, Chairman, InternationalAssociation of Financial Engineers; Principal, Callcott GroupLLC

"If you're interested in what computers are doing with yourmoney, then this book is for you."
Richard Peterson, MD, Managing Director MarketPsyCapital LLC; Author, Inside the Investor's Brain

"In David’s words, the stock market is a "victim not acause" of the great mess of 2008. It’s refreshing to read abook with such insight during these difficult times. I applaudDavid Leinweber for this timely masterpiece."
Bill Aronin, Co-founder Quantitative Analytics, Inc;Sr. Manager, Thomson Reuters

"Clear, light language and wry humor mask DavidLeinweber’s exhaustive compendium of technologicalinnovations for and impacts on asset trading. Leinweber brings anentrepreneur’s experience and an academic’s perspectiveto financial technology; and has produced the definitive work, asup-to-date as it is encyclopedic."
David K. Whitcomb, Founder and Chairman Emeritus,Automated Trading Desk and Professor of Finance Emeritus, RutgersUniversity

"Dr. Leinweber continues to be a patron saint of any nerd whostumbles onto Wall Street. Many of his most insightful ideas arehere in this book, the utility of which are only matched by thehumor of their presentation. As the markets have changed in 2008,the need to collect, process, and understand novel informationsources has never been greater."
Jacob Sisk, Infoshock, Yahoo

"Thoughtful insights covering trading, investment practice andsystem design encased in humor by an expert in all four: a good andpractical read."
Evan Schulman, Founder, Tykhe, LLC.

"David is one of the top practitioners in the fields of textualanalysis and sentiment and its application to trading. Leveraging"smart" machines to parse and extract signal from massivequantities of textual data is hard, and David’s work has puthim at the vanguard of the next wave of alpha generation."
Roger Ehrenberg, Information Arbitrage, and IACapital Partners

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