Index
A
Abe, Shinzo, 128
actions
news events, 63
prices, effect on other markets, 38-39
regulatory actions/lawsuits, announcements, 84-85
Activision, 74
High-Frequency Traders (HFTs), 153
loss of control of trading, 178
May 6, 2010 flash crash, 165
Amaranth, 147
American Enterprise Institute, 50
analysis
economies, 7
odds, 5
risk, 6
anchoring, mental, 238
Android operating system, 65
announcements
corporate, 63
insider trading, 139
M&As (mergers and acquisitions), 76-81
regulatory actions/lawsuits, 84-85
Antitrust Division (U.S. Justice Department), 85
antitrust regulations, 85
income from Apple stores, 83
iPhone, 98
P/E (profits/earnings) ratios, 56
trading glitches, 179
Aquamarine Funds, LLC, 103
arbitrage, 4
Arnold, John, 6
asset price bubbles, 44
Audience, Inc., rumors, 102-103
Australian dollar, 26
Australian Financial Review, 95
automated sell orders (Flash Crash), 164
aversion
losses, 238
risk, 237
avoiding High-Frequency Traders (HFTs), 206
Azumi, Jun, 126
B
bad news, 21
baht devaluation (Thailand), 151
Balsillie, Jim, 82
Bank Negara Malaysia, 129
Bank of America (BAC), M&A, 76-79
central banks as speculators, 128-129
nationalization of banks, 121
bankruptcies, United Airlines (UAL), 96
commercial. See commercial banks
investment. See investment banks
nationalization of, 121
Barber, Brad, 237
Bayes’ theorem, 239
Bear Stearns Companies (BSC), 17-22
beef, 34
behavior
behavioral finance, losses, 236-239
markets, 3
prices, 265
Berkshire Hathaway, 241. See also Buffett, Warren
Best Buy, management changes, 83
Bhatia, Arvind, 72
bid/ask spreads, 194
Blackberry. See Research in Motion (RIMM)
currencies, 226
drug announcements, 84
fat-finger trades, 177
gold, 220
JP Morgan Chase, 148
Volkswagen, 141
Bolak, 55
bubbles, 257
Energy Future Holdings (EFH), 241-243
futures, 15
junk, 227
ratings, 229
reaction to U.S. employment report, 23
Boston Globe, 116
Brady, Nicholas, 169
Brady Commission Report, 172
Braly, Angela, 84
BTUs (British Thermal Units), 242
bonds, 257
Energy Future Holdings (EFH) bonds, 241-243
position announcements, 103-104
bull markets, 7
Bullock, Nicole, 229
Bush, George W., 115
Businessweek, 104
BYD, 103
C
Canada, mad cow disease, 34
capital, 3
capitalization, markets, 142
cash, 227. See also currencies; flights to safety
cattle prices, 34
CBOE (Chicago Board Options Exchange), 155
CBOE Volatility Index (VIX), 7
CBOT (Chicago Board of Trade), 16, 23, 30, 33
CBS MoneyWatch, 82
central banks
interventions, 129
CFTC-SEC Task Force Report, 165, 166
Chevron, 117
Chicago Board of Trade. See CBOT
Chicago Board Options Exchange. See CBOE
Chicago Mercantile Exchange. See CME
China, cooling economies/markets, 121
Chu, Dominic, 64
Citigroup, 39
clearinghouses, 36
CME (Chicago Mercantile Exchange), 23
crash in stock index futures, 166
Eurodollar futures contracts, 152
trading glitches, 178
CME group, stock prices, 35-36
CNET, 67
cocoa futures, 168
collapse of Lehman Brothers, 121, 141
commercial banks, 18
common stocks, 141. See also stocks
communication, speed of, 198
company news events, 63. See also news events
contingency plans, 263. See also planning
contracts
credit default swaps (CDSs), 214
Eurodollar futures, 152
Cook, Jeremy, 225
cooling economies/markets, 120-121
corporate announcements, 63
M&As (mergers and acquisitions), 76-81
regulatory actions/lawsuits, 84-85
correlated bets, 262
costs. See also prices
of credit default swaps (CDSs), 214
of High-Frequency Trades (HFTs), 197
countermoves, 28
Countrywide Financial (CFC), M&A, 76-79
Flash Crash (May, 2010), 1, 163-169
Intercontinental Commodity Exchange (ICE), 168
October 19, 1987, 6, 144, 169-173
credit, reaction to U.S. employment report, 23
credit default swaps (CDSs), 212-216, 243
Credit Suisse, 44
crises
European debt crisis, 217, 225
flights to safety,
crowded trades, 261
Cuban Missile Crisis, 114
currencies. See also banks
Argentina, 32
crises, 217
Eurodollar futures contracts, 152
reactions to U.S. monthly employment reports, 26
South Korea, 14
speculative attacks, 150
swaps, 151
Yen, 146
D
Daehyun, 55
Davis, Peter J., 14
deals, 76. See also M&As (mergers and acquisitions)
failure of, 81
debt
banks, 214
bonds, 224
See also bonds
Japan, 226
decision-making skills, 5, 8-9
defensive investing, 228
demand for credit, 23
derivatives, 148, 234. See also Leeson, Nick
Deutsche Bank, 39
deviations, prices, 3
Dewar, Sally, 101
DI, 54
DiClemente, Anthony, 65
direction. See movement (direction)
disclosure, SEC (Security Exchange Commission), 64
disposition effects, 238
dollars. See also currencies
Australian, 26
Eurodollar futures contracts, 152
Hong Kong, 26
dotcom bubble, 46, 56. See also bubbles
Dow Jones & Company (DJ), 156-157
Dow Jones Industrial Average (DJIA)
Kennedy Panic, 114
May 6, 2010 flash crash, 164
October 19, 1987 crash, 144
Duhalde, Eduardo, 217
Dunn, Brian, 70
duration of market shocks, 30-36, 266
Dutch Tulip bubble, 44
E
EA (Electronic Arts), 75
P/E (profits/earnings) ratios, 38
Ebersman, David, 69
economic theories, 237
economies
analysis, 7
edges, trading, 256
ego, 249
Ehrman, Douglas, 100
elections, 115-116. See also politics
electronic trading, 194. See also algorithms
Elop, Stephen, 99
E-mini S&P 500 Stock Index, 23
employment
U.S. Employment Situation Report, 201
U.S. monthly employment report, reactions to, 22-26
Energy Future Holdings (EFH) bonds, 241-243
Eurodollar futures contracts, 152
European Central Bank, 122
European debt crisis, 217, 225
evaluation
price responses, 29
of trades, 9
even-money bets, 5
excessive leverage, 247
exchanges, futures, 36
expectations
CME Fed Watch, 31
to U.S. monthly employment reports, 23
F
Facebook, 17
IPOs (initial public offerings), 70
failure of deals, 81
fair disclosure, SEC (Security Exchange Commission), 64
Fairfax Financial, 107
Federal Reserve, 122
quantitative easing, 224
SocGen (Societe Generale), 147-148
terrorist attacks, 114
Federal Reserve Bank of New York, 18
FedEx, 64
Financial Services Authority (FSA), 139, 149
Porsche, 143
trading glitches, 180
financing, access to, 19
First Republic Bank (FRC)/Merrill, M&A, 80-81
Fitch Ratings, 229
flash crashes, 1, 163-169. See also crashes
flights to safety, 211
credit default swaps (CDSs), 212-216
U.S. Treasury security, 224-225
flow trading operations, 236
Forbes, Cuban Missile Crisis, 115
Forbes 400, 5
Forbes.com, 56
foreign exchange (FX) traders, 235
fraud
Muddy Waters, LLC, 106
rumors about, 103
frequency, trading, 248. See also High Frequency Traders (HFTs)
Funcom, 74
cocoa, 168
E-mini S&P 500 Stock Index, 23
Eurodollar futures contracts, 152
exchanges, 36
market reactions to Fed funds cut, 30
natural gas, 243
S&P 500 contracts, 145
trading strategies, 195
Treasury bonds, 15
G
Galaxy S series of smartphones (Samsung), 98
Gallo, Stephen, 226
Galuccio, Miguel, 117
Game Rankings, 74
games, rules of, 3. See also trading
GIC, 240
TSE failure to cancel trades, 183-184
globalization, 3
Goenka, Rameshkumar Satyanarayan, 149
position announcements, 104
selloffs, effect on other markets, 39
good news, 21
See also news events
rumors, stories about, 97
Gore, Al, 115
governments, impact on business climate, 32
Grand Theft Auto, 72
Greece, 217
Green Mountain Coffee Roasters (GMCR), 37, 53
position announcements, 104
Greenspan, Alan, 50
Guardian, The, 68
H
Haarde, Geir, 214
Halifax Bank of Scotland (HBOS), rumors, 100-102
Hamanaka, Yasuo, 124
Hang Seng index, 152
hedge funds
Amaranth, 147
short selling, 107
speculative attacks, 151
heuristics, 239
High-Frequency Traders (HFTs), 1, 153, 165, 192-206
avoiding, 206
profits, 235
trading glitches, 178
Homefront, 73
Hong Kong dollars, 150. See also currencies
Hong Kong Monetary Authority (HKMA), 150-152
horizons, 4
planning, 260
scheduled/unscheduled shocks, 266
human traders, 195. See also algorithms; traders
Hunt v. the New York Cotton Exchange (1907), 200
Hynix Semiconductor, Inc., 85
Hyundai Motors, rumors, 100
I
Icahn, Carl, 105
Iceland, 217
identifying
Iguchi, Toshihide, 124
indexes
Hang Seng, 152
Kospi, 14
S&P 500 stock, 145
India, National Stock Exchange (NSE), 177
Industrygamers.com, 72
inflation, 218
bonds, 225
fear of risk, 227
informed trading. See insider trading
initial public offerings. See IPOs
Dow Jones & Company (DJ), 156-157
Institute for International Finance (IIF), 52
Interactive Brokers, 234
Intercontinental Commodity Exchange (ICE), 168
interest rates, 151. See also currencies
market reactions to Fed funds cut, 30
reaction to U.S. employment report, 23
Internal Revenue Service (IRS), 58
Internet bubble, 45. See also bubbles
interruptions, trading, 179-182
interventions, central banks, 129
investing, comparing trading and, 4
Bear Stearns Companies (BSC), 17-22
market making, 234
iPhone (Apple), 98. See also Apple (AAPL)
IPOs (initial public offerings)
trading glitches, 179
irrational pricing, 57
J
Japan
crashes, 174
debt, 226
Yen, 146
Jeffries, Adrianne, 69
Jerram, Richard, 226
jobs, reactions to U.S. monthly employment reports, 22-26
Jobs, Steve, 38. See also Apple
rumors about health of, 102
Jones II, Paul Tudor, 5, 53, 264
Jong-ll, Kim, 14
JP Morgan Chase, 18
Bank of Japan, 126
Bear Stearns, 156. See also Bear Stearns
junk bonds, 227
Energy Future Holdings (EFH), 241-243
K
Kennedy, John F., 114
Kerry, John, 115
Kirchner, Christina, 118
Knight Capital, 178
Korea Exchange (KRX), 100
Kospi index, 14
krone (Norway), 226. See also currencies
L
large traders, 144. See also whales
lawsuits, announcements, 84-85
Lazaridis, Mike, 82
LDP (Liberal Democratic Party), 128
Lehman (LEH), 21
gold, 220
Volkswagen, 141
Leung, Charlotte Wong, 157
Leung, Michael, 157
leverage, excessive, 247
Liberal Democratic Party. See LDP
LIBOR (London Interbank Offered Rate), 152-153
limits
risk, 267
Lipitor, 84
liquidity, flights to safety, 214, 219
London Interbank Offered Rate. See LIBOR
Long-Term Capital Management, 217
losses, 233. See also earnings
aversion, 238
failures
to listen to the market, 246
planning, 249
good trades, 250
lotteries, 267
Lumia 820/920, 98
M
Macquarie Group, 64
Macquarie Securities, 226
mad cow disease, 34
Maher, Daragh, 226
management changes
Best Buy, 83
Research in Motion (RIMM), 82-83
manipulation
prices. See also insider trading; prices
trading volume, 152
Marketday, 66
market making, 234
behaviors, 3
bull, 7
capitalization, 142
crashes, 6, 169-173. See also crashes
currency swaps, 151
effect of rumors on, 96-98. See also rumors
High-Frequency Traders (HFTs), 196-200
insider trading. See insider trading
price behavior, 265
reactions
to irrational exuberance, 51-59
mad cow disease, 34
price action effect on other markets, 38-39
U.S. monthly employment report, 32-33
repo, 17
South Korea, 14
U.S. monthly employment report, reaction to, 22-26
Marketwatch.com, 66
M&As (mergers and acquisitions), 76-81
Bank of America (BAC)/Countrywide Financial (CFC), 76-79
failure of deals, 81
First Republic Bank (FRC)/Merrill, 80-81
Sirius Satellite Radio/XM Satellite Radio, 85
Massively Multiplayer Online games. See MMO games
maturity of securities, 15
May 6, 2010 flash crash, 1, 163-169
McDonald’s, 35
McKinsey and Co., 58
mechanical price-insensitive selling, 173
mental anchoring, 238
Merckle, Adolf, 143
MetaCritic, 74
metrics, valuation, 56
Micron Technology, 85
middlemen, 196
minimization strategies, risk, 26
MMO (Massively Multiplayer Online) games, 74
money, losses, 233. See also losses
Motley Fool Blog Network, 100
Motorola Mobility, 65
Bear Stearns Companies (BSC), 17-22
U.S. monthly employment report, 22-26
N
NASDAQ
Internet bubble, 45
Tiger Management, 50
United Airlines (UAL), 97
U.S. presidential election (2000), 115
nationalization, 32
of banks, 121
Iceland banks, 217
National Stock Exchange (NSE), 177
natural gas, 243
NBG Productions, 83
NEMAX, 46
Netflix, position announcements, 105
new products, announcements, 71-76
News Corporation, 157
news events, 63
analyzing, 2
Bear Stearns Companies (BSC), 17-22
Citigroup, 39
direction (of prices), 17
rumors. See rumors
U.S. monthly employment report, 22-26
Newton, Isaac, 45
New York Mercantile Exchange. See NYMEX
New York Stock Exchange. See NYSE
New York Times
collapse of Lehman Brothers, 121
deal failures, 81
NYMEX (New York Mercantile Exchange), 36
NYSE (New York Stock Exchange), 18-19, 178
O
Obama, Barack, 84
October 19, 1987 crash, 144, 169-173
odds, analysis, 5
Odean, Terrance, 237
Olam, 106
one-sided best, 5
options, price bubbles, 48
Oracle of Omaha. See Buffett, Warren
orders
automated sell orders (Flash Crash), 164
stop-loss, 21
overconfidence, 237
P
Palm, 58
panics, 114
Paulson & Co., 105
Pearl Harbor, 114
Peoples’ Bank of China, 122
P/E (profits/earnings) ratios, 38
Amazon, 56
Apple, 56
Peterffy, Thomas, 234
phonearena.com, 98
Pick, Dr. Franz, 218
pit traders, 193. See also trading
Pivotal Research Group, 69
correlated bets, 262
crowded trades, 261
failures, 249
horizons, 260
monitoring, 263
risk on/risk off, 262
securities to trade, 259
size of trades, 259
strategies, 255. See also strategies
trade execution, 262
politics, 113
cause of market shocks, 114-115
U.S. presidential election (2000), 115-116
Porsche (as hedge fund), 140-143
Portugal, 217
positioning, announcements, 103-106
Porsche (as hedge fund), 140-143
predicting prices, 5
preferences, shifts in risk, 52
pre-market prices, 19
Presidential Task Force on Market Mechanisms, 169
actions, effect on other markets, 38-39
asset. See asset prices
Bear Stearns Companies (BSC), 17-22
behavior, 265
cattle, 34
deviations, 3
effect of rumors on, 95. See also rumors
futures, E-mini S&P 500 Stock Index, 23-25
insider trading. See insider trading
irrational pricing, 57
mechanical price-insensitive selling, 173
predictions, 5
stocks, 1
trading glitches. See glitches; trading
probability, 239
flow trading operations, 236
foreign exchange (FX) traders, 235
High-Frequency Traders (HFTs), 1, 235
losses. See losses
P/E (profits/earnings) ratios, 38
PureView camera, 98
pyramids, 49
Q
Qnexa, 84
quantitative easing, 224
Quantum fund, 48, 53. See also Soros, George
R
rallies, Bear Stearns Companies (BSC), 20
Rambus, Inc., 85
fat-finger trades, 177
ramifications of algorithms, 200-206
rate fixing scandals (LIBOR), 152-153
ratings, bonds, 229
rational analysis, limits of, 54-57
ratios, P/E, 38. See also P/E (profits/earnings) ratios
reactions
markets
to irrational exuberance, 51-59
mad cow disease, 34
price action effect on other markets, 38-39
U.S. monthly employment report, 32-33
real estate bubbles, 44. See also bubbles
reflexivity, 52
regulations, SEC (Security Exchange Commission), 64
regulatory action/lawsuit announcements, 84-85
Reliance GDRs, 150
repo market, 17
reports
CFTC-SEC Task Force Report, 165-166
earnings, 64. See also earnings
U.S. Employment Situation Report, 201
U.S. monthly employment report, reaction to, 22-26
Research in Motion (RIMM), 82-83
responses
to market shocks, 17. See also movement (direction)
price evaluation, 29
results, earnings, 67. See also earnings
analysis, 6
aversion, 237
credit default swaps (CDSs), 212-216
fear of, 227
high-frequency traders (HFTs), 1
limiting, 267
minimization strategies, 26
risk on/risk off, 262
scheduled/unscheduled shocks, 266
shifts in preferences, 52
rogue traders, 124
R.R. Donnelley & Sons Co., 64
about health of Steve Jobs, 102
Halifax Bank of Scotland (HBOS), 100-102
Hyundai Motors, 100
run on banks, 18
Russian oil companies, 118
S
safety, 211. See also flights to safety; risk
Samsung Galaxy S series of smartphones, 98-99
Savov, Vlad, 98
Schachter, Benjamin, 64
scheduled shocks, 266
Schneider Foreign Exchange, 226
SEC (Security Exchange Commission), 28, 30, 64
Secret World, The, 74
securities, 15. See also bonds; stocks
planning to trade, 259
Security Exchange Commission. See SEC
selloffs
automated sell orders (Flash Crash), 164
Goldman Sachs, effects of, 39
September 11, 2001, 114
Serebriakov, Vassili, 127
Seykota, Ed, 269
shifts in risk preferences, 52
bubbles, 49
currencies, 150
Green Mountain Coffee Roasters (GMCR), 53
Sinoforest, 53
Volkswagen, 140
Singapore Investment Corporation (GIC), 240
Sirius Satellite Radio, 85
size of trades, 259
skills, trading, 3
smartphones
Nokia, 98
Samsung, 98
SocGen (Societe Generale), 147-148
Bank of England, 128
losses, 145
market efficiency, 53
reflexivity, 52
South Florida Sun-Sentinel, 97
Sozzi, Brian, 83
S&P 500 stock index, 145
speculation
speculators, central banks as, 124-131
Spier, Gary, 103
spreads, bid/ask, 194
statistics, 239
Steel Crisis, 114
stereotypes, 239
Sterne Agee, 72
stocks. See crashes
crashes (October, 1987), 6, 169
markets. See markets
prices, 1
surges, 2
volatility, 2
stop-loss orders, 21
correlated bets, 262
crowded trades, 261
High-Frequency Traders (HFTs), 196-200
planning, 255
risk on/risk off, 262
size of trades, 259
trade execution, 262
trading edges/types, 256
sudden drops in earnings, 70-71
surges, stocks, 2
swaps
credit default swaps (CDSs), 212-216, 243
currencies, 151
Swedish Riksbank, 122
Swiss National Bank, 122-125, 225
T
technology, 196-200. See also algorithms
Thailand, baht devaluation, 151
theories, economic, 237
3Com, 58
Time Tech, 73
T-Mobile, 81
Tokyo Stock Exchange (TSE), trading glitches, 183-186
foreign exchange (FX), 235
rogue, 124
algorithms, 192-206. See also algorithms
Amaranth, 147
comparing investing and, 3
edges, 256
flow trading operations, 236
frequency, 248
TSE failure to cancel trades, 183-184
High-Frequency Traders (HFTs), 153, 192-206
markets. See markets
monitoring, 263
planning. See planning
reasons for entering disappear, 249
SocGen (Societe Generale), 147-148
trade sizes too large, 247-248
types, 256
volume, manipulation, 152
transactions, 143. See also M&As; predatory trading
arbitrage, 4
futures, 15
market reactions to Fed funds cut, 30
Triarc Cos., 79
Tulipmania, 44
types, trading, 256
U
United Airlines (UAL), rumors, 96-98
unscheduled shocks, 266
UPS (United Parcel Service), 64
U.S. dollar, 151. See also currencies; dollars
U.S. Employment Situation Report, 201
U.S. Food and Drug Administration (FDA), 84
U.S. Justice Department, 14, 36, 85
U.S. Labor Department, 23
U.S. monthly employment report, 22-26, 32-33
U.S. presidential election (2000), 115-116
U.S. Treasury Department, 14
U.S. Treasury security, flights to safety, 224-225
utility of wealth, 236
V
valuation metrics, 56
values
of ideas, 8
perception of, 43
Varian, Hal R., 58
Verizon, 98
Vivus (VVUS), 84
volatility of stocks, 2
volume
high-frequency traders (HFTs), 1
trading, manipulation, 152
W
Wall Street Journal
video game reviews, 73
Wall Street: Money Never Sleeps, 45
Weber, Chris, 98
Wellpoint, management changes, 83-84
Wells Fargo & Co., 127
Wendy’s, 35
White, Martha, 66
Whitehaven Coal, 95
Wieser, Brian, 69
Windows Phone 8 OS, 98
World First, 225
WPX Energy, Inc., 32
X
XM Satellite Radio, 85
Y
YAHOO!, 74
Yam, Joseph, 152
Yen, 146
yen-weakening policies, 126
Youngdahl, John M., 14
YPF (Tacimientos Petrolíferos Fiscales), 32, 117-118
Z
Zuckerberg, Mark, 69