High frequency Trading…

Although I should probably read the new “Flash boys” book by Michael Lewis, after watching the 60 minutes interview with Steve Kroft I am quite disappointed in Lewis (or perhaps more accurately, the “artful” editing of the interview by the CBS news “team”). University of Houston finance professor Craig Pirrong makes a rather compelling argument that high frequency trading (HFT) actually makes markets more informationally efficient. Professor Pirrong notes, among other things, that the “… bulk of informed trading is rent seeking, and a tax on the risk allocation functions of financial markets”; if this is true then one can argue that HFT may actually be welfare-improving. Also see Tyler Cowen’s blog posting entitled “*Flash Boys*, the new Michael Lewis book” from earlier today; Professor Cowen likes Lewis’s book but cautions not to “…confuse the emotional tenor of the stories with a final and well-reasoned attitude toward the phenomenon more generally”.