Paper #735

Title:

How to recognize opportunities: Heterarchical search in a Wall Street trading room

Authors:

Daniel Beunza Ibáñez and David Stark

Date:

January 2004 (Revised: September 2005)

Abstract:

Our task in this paper is to analyze the organization of trading in the era of quantitative finance. To do so, we conduct an ethnography of arbitrage, the trading strategy that best exemplifies finance in the wake of the quantitative revolution. In contrast to value and momentum investing, we argue, arbitrage involves an art of association - the construction of equivalence (comparability) of properties across different assets. In place of essential or relationa l characteristics, the peculiar valuation that takes place in arbitrage is based on an operation that makes something the measure of something else - associating securities to each other. The process of recognizing opportunities and the practices of making novel associations are shaped by the specific socio-spatial and socio-technical configurations of the trading room. Calculation is distributed across persons and instruments as the trading room organizes interaction among diverse principles of valuation.

Keywords:

Arbitrage, trading, heterarchy

JEL codes:

M11, G19

Area of Research:

Management and Organization Studies

Published in:

K. Knorr Cetina et A. Preda (ed.), The sociology of financial markets, Oxford University Press, October 2004

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