Technological Innovation has always affected trading ....

Old days of trading: highly specialized humans

Modern Day Trading

Autonomous Algorithms run the show

Modern Day Trading

Trading floors are more suited for parties and journalists

Modern Day Trading

And the former heart of Wall Street is now in a faceless & glamourless suburb of Mawah, NJ

What drove this change of Wall Street (and the demise of the NYSE as we knew it)?

Why? The machines ...

• Many trading strategies are more-or-less mechanical/probabilistic
• computers are
  • faster,
  • cheaper, and
  • more reliable 
• Computer algos allow much wider scope

Source: Bloomberg News, Feb 20, 2015

Note: The biggest disruptors (the HFTs) came from the outside of the traditional system (kinda).

Why? The HR ...

• Old skill-set of an equity trader
  • good and fast with numbers
  • brash
  • strong vocab in profanities
• New skill set
  • programming
  • stats/data
  • econometrics
  • machine learning
  • ....

The result?

Markets get better: the post earnings announcement drift had been a long-standing puzzle in finance. ... It's gone.

What's the impact?

Source: Martineau JFQA 2020

Markets get better: larger fraction of return variation is captured by market returns

What's the impact?

Source: Park & Wang (WP 2020)

Algo traders are key for liquidity provision: they go away, liquidity tanks

What's the impact?

Source: Malinova, Park, Riordan (WP 2019)

The new frontier: decentralized trading (aka no exchanges!!!)