Beyond Zero and One (Andrew Smart) / quote 75 of 171
Markets disconnected from the real economy
Furthermore, new algorithms that exploit the high volatility associated with distress and crashes are being aggressively developed. The presence of these “agents” in the market can cause self-perpetuating, reflexive hyper-volatility that can spiral out of control. Dr. Sornette compares this behavior to aftershocks from an earthquake. These internally triggered transactions (defined as those transactions that are not the result of some new external information) increased from thirty percent in the 1990s to at least eighty percent today. According to Sornette, “This proves, using hard numbers, that markets increasingly live a life of their own, disconnected from the real economy, activated by machines and the algorithms that compete to trade in milliseconds.”