Algorithmic and quantitative investment solutions have come under fire of late from many in the investment community, as traders bemoan outsized price moves and swings on headline word triggers.
"The evolution of price discovery, where not only the algorithms -- that we all complain drive price more than anything else, along with artificial intelligence and high-frequency trading...[and] "word triggers" now drive price," Stephen "Sarge" Guilfoyle said in his column on Monday morning. "All of these later-day impacts to the way price is discovered really fall under one bundle, and have truly changed this game to the point where the market does not necessarily do what many think it might."
He suggested that algorithms are "perverting" the logicality of the market.
To learn more about how exactly these strategies move the market, Real Money had a chat with Petra Bakosova, COO of quantitative asset management firm Hull Tactical.
"We gather a whole array of macro variables, fundamental variables, technical variables, and sentiment variables," she explained, explaining that the algorithms keep the market more efficient by factoring in these broad variable.
Bakosova also honed in on specific examples that attract the "sentiment variables" such as headlines and social media reaction.
Watch: Peeling Back the Band-Aid: Johnson & Johnson
Perhaps no stock is receiving as much attention in terms of these variables as Johnson & Johnson (JNJ) amid its multiple day selloff.
"There might be one type of algorithm that scouts for news headlines and whatever it can interpret as a bullish or bearish sign and go with the momentum," she explained.
However, she noted that there are algorithms that do run on the other side of the coin, looking for a market overreaction.
"What really matters is the sum of opinions that come into the market," she concluded, explaining that contrasting algorithms can often offset each other.
To watch the full interview with Real Money, click here.
