I hereby make a bet that the ongoing revolution of algorithmic trading is going cause a global recession once in the next 100 years
My reasoning is fairly simple. Due to the stochastic nature of market movements, we will continue to see minor upturns and downturns (essentially caused by behavioral reasons, rather than any fundamental one). The algorithms in place that time will somehow pick on one of these upturns, and inflate it. All the algorithms in place will try to benefit from this anomaly, participate in this bubble and inflate it. Until some human intervenes, and exits the bubble. This will be followed by many humans and algorithms doing the same, causing the bubble to crash.
This story seems to have the two necessary and sufficient ingredients of a boom-bust cycle. It contains a financial or technical innovation (algo trading) being used excessively, which is necessary to fuel a bubble. The restoration of sanity, due to human intervention, triggers the crash-correction.
My reasoning is fairly simple. Due to the stochastic nature of market movements, we will continue to see minor upturns and downturns (essentially caused by behavioral reasons, rather than any fundamental one). The algorithms in place that time will somehow pick on one of these upturns, and inflate it. All the algorithms in place will try to benefit from this anomaly, participate in this bubble and inflate it. Until some human intervenes, and exits the bubble. This will be followed by many humans and algorithms doing the same, causing the bubble to crash.
This story seems to have the two necessary and sufficient ingredients of a boom-bust cycle. It contains a financial or technical innovation (algo trading) being used excessively, which is necessary to fuel a bubble. The restoration of sanity, due to human intervention, triggers the crash-correction.
