Note that, strictly speaking, this couldn’t be possible, since people are not logically omniscient. There is some finite rate at which people can compute the consequences of facts (including disparate facts at first not known to be related to each other), so there will be some finite rate at which the market incorporates new information.
This suggests that you don’t actually need private information to beat the market. If you can do better analysis or do it faster, that can give you alpha as well.
But then there’s a market for doing that analysis. And some of that alpha ends up accruing to HFT firms, or to the salaries of traders, etc.
Yep, true—hence high-frequency traders. I remember reading how one firm installed a direct cable between Chicago and New Jersey at some incredible expense to shave a few milliseconds off transmission time.
Note that, strictly speaking, this couldn’t be possible, since people are not logically omniscient. There is some finite rate at which people can compute the consequences of facts (including disparate facts at first not known to be related to each other), so there will be some finite rate at which the market incorporates new information.
This suggests that you don’t actually need private information to beat the market. If you can do better analysis or do it faster, that can give you alpha as well.
But then there’s a market for doing that analysis. And some of that alpha ends up accruing to HFT firms, or to the salaries of traders, etc.
Yep, true—hence high-frequency traders. I remember reading how one firm installed a direct cable between Chicago and New Jersey at some incredible expense to shave a few milliseconds off transmission time.