MITRE and University of Vermont Identified More Than $2 Billion of Inefficiencies in U.S. Stock Market in 2016

MCLEAN, Va. & BEDFORD, Mass.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/economics?src=hash” target=”_blank”gt;#economicslt;/agt;–This week, MITRE and University of Vermont (UVM) released two papers
that analyze U.S. financial market dynamics and found more than $2
billion in inefficiencies in 2016, the most recent data available for
analysis when the research started. The researchers studied market
behavior using Thesys StarMap, the most comprehensive source of publicly
available stock market data and the same data used by the U.S.
Securities and Exchange Commission for its Market Information Data
Analytics System (MIDAS).

The papers examine trades and the resulting inefficiencies for all
stocks in the Dow Jones Industrial Average 30 (paper
1
), Standard & Poor’s 500, and Russell 3000 (paper
2
) indices. These stocks trade in the National Market System (NMS),
colloquially referred to as the “stock market.” The NMS is comprised of
13 geographically distributed exchanges, including the New York Stock
Exchange in Mahwah, N.J., and Nasdaq in Carteret, N.J. Therefore, the
NMS may present different prices to traders at different locations,
leading to market inefficiencies.

“The U.S. stock market has fundamentally changed in the past dozen
years,” said Brian Tivnan, MITRE’s Modeling and Simulation Center chief
engineer. “During our nearly decade-long partnership with UVM, we’ve
used advanced analytics in new and different ways. This research
analyzes market dynamics and revisits previous notions of market
efficiency—and informs new approaches to enhance the resilience of our
financial infrastructure. While we observed many market inefficiencies,
it’s important to remember that these inefficiencies incentivize market
participation.”

As the financial crisis began to unfold in 2008, MITRE focused a
component of its independent
R&D program
on the resilience of the financial system. Shortly
thereafter, MITRE and UVM partnered to look at challenges to the
stability of the financial sector and related problems in other
large-scale, complex systems. For example, in 2014, the partnership
developed a
novel approach to minimize cascading risk within and between critical
infrastructure networks
.

“At the Vermont Complex Systems Center, we connect the dots in
large-scale data to reveal the mechanisms responsible for emergent
behavior,” stated Chris
Danforth
, UVM associate professor and associate director of the
Center. “Our partnership with MITRE gives us access to state-of-the-art
applications, expertise, and the data required to explore complex
systems like the stock market.”

Read the complete analyses and findings around the Dow 30 in the
research paper, Fragmentation
and Inefficiencies in the U.S. Equity Markets: Evidence from the Dow 30
.
Read
the complete analyses and findings around the S&P 500 and Russell 3000
in the research paper, Scaling
of inefficiencies in the U.S. equity markets: Evidence from three market
indices and more than 2900 securities
.

About The MITRE Corporation

MITRE’s mission-driven teams are dedicated to solving problems for a
safer world. Through our federally funded R&D centers and public-private
partnerships, we work across government to tackle challenges to the
safety, stability, and well-being of our nation.

About University of Vermont

Founded in 1791, the fifth oldest university in New England, the
University of Vermont is a premier research university that places
emphasis on undergraduate education.

Contacts

Michelle Herd
mherd@mitre.org
703.983.6404

error: Content is protected !!