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McLaughlin / WR 13300 / Fall 2014

Research Essay Proposal/Exploratory Draft

Due In Class on 10/28; worth 10 points

Directions: Complete the following proposal and exploratory draft for your research
project (you may type on a separate document, if you wish). A printed copy of your
proposal and exploratory draft is due IN CLASS on Tuesday, 10/28. I will meet with
students individually to grade and discuss these documents, which will be factored into
your final research paper grade. To earn full points, these items should be detailed and
should reflect your careful thinking about your project.

Part 1: Research Proposal

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YOUR NAME: Anthony Calvo

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TOPIC (I am studying):

How trends in software engineering are shaping the stock market

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RESEARCH QUESTION(S) (because I want to find out):

I want to find out if automated trading is really a viable alternative to traditional stock
transactions

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AUDIENCE & SIGNIFICANCE (in order to help _______ understand):

In order to help investors understand the potential risks and rewards of automated trading.

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CONTEXT (This issue is important and timely because):

This issue is important and timely because using computer programs to trade stocks is
relatively, but is becoming more and more popular especially among large investing
firms.



EXHIBIT (To illustrate my discussion of ______, I plan to focus on_______):

To illustrate how trends in software engineering are shaping the stock market, I plan to
focus on the advantages and disadvantages of automated trading. ( hacking, incorrect
data, amount of time it takes to act)

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KEY SOURCES FOUND SO FAR:

MLA citation

Durenard, Eugene A.. Wiley

Finance : Professional
Automated Trading : Theory
and Practice. Somerset, NJ,
USA: John Wiley & Sons,
2013. ProQuest ebrary. Web.
24 October 2014.

Type of source?

What does the source offer

your project?

Book

It describes the theory

behind automated trading
then explains how to
integrate it with examples.

Article

Gives an example of how

automated trading
malfunctions almost led tot
he the collapse of a
corporation.

Zubulake, Paul, and Lee, Sang.

High Frequency Game
Changer : How Automated
Trading Strategies Have
Revolutionized the Markets.
Hoboken, NJ, USA: John
Wiley & Sons, 2011. ProQuest
ebrary. Web. 24 October 2014.

Book

Describes how the market

place has transitioned to an
electronic one allowing for
automated trading. A
description of the Markets
structure due to this change
and the possibilities opened
up due to automated trades.

Rodriguez, E., Aguilar-Cornejo,

M., Femat, R., and AlvarezRamirez, J. "US Stock Market
Efficiency over Weekly,
Monthly, Quarterly and Yearly
Time Scales." Physica A:
Statistical Mechanics and Its
Applications 413 (2014): 554-64.
Web.

Article

Questions wether the

market has uniform change
over time. Discusses
multiple theories of wether
or not the market is simply
random or if there are
universal trends. Automated
trading relies on the
assumption the market is
not simply random.

"The Lazarus of Wall Street;

automated trading." The
Economist 11 Aug. 2012:
65(US). Expanded Academic
ASAP. Web. 24 Oct. 2014.

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Exploratory Draft

I plan to argue that automated trading is not viable option for everyday investors.

Automated trading is using computer programs to trade stocks. Currently the advantages seem to
be faster trading times, unemotional decision making, and less time spent monitoring the market.
The topic is incredibly interesting to me because it combines two of my passions, computer
programming and investing. Automated trading is currently controversial because despite its
potential for greater profits, the risk of malfunctions poses a serious threat. Recently many large
investing firms have implemented automated trading strategies, but there are many more which
are still on the brink of a decision. In addition a few everyday investors have begun writing their
own programs, but this is a very small minority. Writing these programs requires technical
expertise in both programming and finance making individuals access to automated trading fairly
limited. The advantages and disadvantages of automated trading have been discussed in regard to
large investing firms individually. However, what this means for the everyday investor has not
yet been researched.

The birth of automated trading poses considerable threats to everyday investors that have

not yet been considered. To clarify an individual everyday investor can benefit greatly from
automated trading, however the general trend poses a threat to the large majority of everyday
investors who cannot implement automated trading systems. Even if somehow the everyday
investor could find access to automated trading systems the biggest benefit of faster trading times
would be nullified because relatively the times are the same. Even then large firms could afford
more powerful networks that run programs and send trades in faster than everyday investors.
Recently the market has also been more volatile which could be a result of automated trading.
The goal is generally to buy a stock at its lowest price and sell at its highest, therefore when a

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stock is going up or down some of these programs allow for stocks to soar higher and plummet
lower then they should. Drastic trend changes in the market due to automated trading are still
unpredictable. Malfunctions and these changes could lead to the market crashing more often,
which in turn means more unemployment and recession. These crashes could be incredible buy
opportunities for the extremely wealthy or large firms, but the everyday worker does not have the
money to sustain a large loss for long.

I have found four sources, two books and two articles. The first is Professional

Automated Trading: Theory and Practice which essentially explains why automated trading
works and its benefits, then teaches how to put it into practice. However, proponents of
automated trading might reply that the book is simply theoretical and there is no way of knowing
the benefits and drawbacks without implementing automated trading. The Lazarus of Wall
Street; automated trading shows an example of what could happen with automated trading. The
article describes how an automated trading malfunction almost led to the collapse of an entire
corporation, Knight Capital. How automated trading strategies have revolutionized markets
gives background information of the market before automated trading and the present day with
automated trading. It also theorizes how the growing number of automated trades could affect the
market in the future. Large investing firms believe it is possible for programs to eventually
become free of malfunctions and for the market to change for the better. US Stock Market
Efficiency over Weekly, Monthly, Quarterly and Yearly Time Scales questions the markets
uniformity. Overtime investors have tried place trends on the market, but it is still possible that
the markets movements are still relatively random and cannot be predicted based on certain
factors and conditions.

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Th main concern I have with this paper is that I, personally, am not entirely certain of

wether the switch to automated trading is a viable one. I have not yet fully investigated the
subject, and therefore I do not know if there are more compelling arguments for automated
trading that I have not seen. I anticipate running into problems when I find sources that go
beyond my understanding of finance or programming. However, I feel that this will not be an
issue because I genuinely enjoy learning about both subjects and will not consider it work to
learn about the concepts in more detail. Also I am not aware how much everyday investors know
about stock market trends and programming.

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