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Saturday, March 11, 2006

Building a Better Wall Street?

Just finished reading a good article on disruptive technologies and it got me thinking...what will the Wall Street of the future look like?

Few could argue that technology has already transformed the investment world, but what will be the driver going forward? My argument is that the future of financial innovation is more a function of mathematics and theory, not technology. Here is how I envision the future:

  • Traders will execute trades generated by research signals and be non-discretionary: This will eliminate the potential for 'rouge traders.'

  • Research departments at investment firms will have 'hubs' at major universities that work with the in-house researchers: This will allow for much better allocation of intellectual resources within the financial community.

  • Researchers will focus on creating algorithms that automate asset allocation decisions: This will go a long way towards eliminating 'human error' and allow researchers to leverage talent to create even more algorithms, etc, etc.

  • The returns of hedge funds will be replicated and create a market for 'alternative investment indexing': This will greatly reduce the fees that hedge fund managers can charge and create a wave of consolidation within the alternative investment management industry.
There is much more that I see happening in the future. But I think these trends will have the most significant impact on the investment landscape.

Posted by Trade Monkey :: 3:08 PM :: 0 comments Perma-Link

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