They Still Haven't Told You

Abstract

The world's stock markets display a decades-long pattern of overnight and intraday returns seemingly consistent with only one explanation: one or more large, long-lived quant firms tending to expand its portfolio early in the day (when its trading moves prices more) and contract its portfolio later in the day (when its trading moves prices less), losing money on its daily round-trip trades to create mark-to-market gains on its large existing book. In the fourteen years since this extraordinary pattern of overnight and intraday returns was first noted in the literature, no plausible alternative explanation has been advanced. The main question remaining is therefore which of the few firms capable of profitably trading in this manner are guilty of having done so. If any of this is news to you, it is because the people you trust to alert you to such problems still haven't told you.