4/13/2019 MITRE and University of Vermont Identified More Than $2 Billion of Inefficiencies in U.S.

iencies in U.S. Stock Market in 2016 | The MITRE Corporation

Press Releases
MITRE and University of Vermont Identified More Than $2 Billion of
Inefficiencies in U.S. Stock Market in 2016

McLean, Va., and Bedford, Mass., February 14, 2019 – This week, MITRE and
University of Vermont (UVM) released two papers that analyze U.S. financial market
dynamics and found more than $2 billion in inefficiencies in 2016, the most recent data
available for analysis when the research started. The researchers studied market
behavior using Thesys StarMap, the most comprehensive source of publicly available
stock market data and the same data used by the U.S. Securities and Exchange
Commission for its Market Information Data Analytics System (MIDAS).

The papers examine trades and the resulting inefficiencies for all stocks in the Dow
Jones Industrial Average 30 (paper 1), Standard & Poor’s 500, and Russell 3000 (paper
2) indices. These stocks trade in the National Market System (NMS), colloquially
referred to as the “stock market.”  The NMS is comprised of 13 geographically
distributed exchanges, including the New York Stock Exchange in Mahwah, N.J., and
Nasdaq in Carteret, N.J. Therefore, the NMS may present different prices to traders at
different locations, leading to market inefficiencies.

“The U.S. stock market has fundamentally changed in the past dozen years,” said
Brian Tivnan, MITRE’s Modeling and Simulation Center chief engineer. “During our
nearly decade-long partnership with UVM, we’ve used advanced analytics in new and
different ways. This research analyzes market dynamics and revisits previous notions
of market efficiency—and informs new approaches to enhance the resilience of our
financial infrastructure. While we observed many market inefficiencies, it’s important
to remember that these inefficiencies incentivize market participation.”

As the financial crisis began to unfold in 2008, MITRE focused a component of its
independent R&D program on the resilience of the financial system. Shortly thereafter,
MITRE and UVM partnered to look at challenges to the stability of the financial sector
and related problems in other large-scale, complex systems. For example, in 2014, the
partnership developed a novel approach to minimize cascading risk within and
between critical infrastructure networks.

“At the Vermont Complex Systems Center, we connect the dots in large-scale data to
reveal the mechanisms responsible for emergent behavior,” stated Chris Danforth,
UVM associate professor and associate director of the Center. “Our partnership with
MITRE gives us access to state-of-the-art applications, expertise, and the data
required to explore complex systems like the stock market.”

Read the complete analyses and findings around the Dow 30 in the research paper,
Fragmentation and Inefficiencies in the U.S. Equity Markets: Evidence from the Dow
30.

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4/13/2019 MITRE and University of Vermont Identified More Than $2 Billion of Inefficiencies in U.S. Stock Market in 2016 | The MITRE Corporation

Read the complete analyses and findings around the S&P 500 and Russell 3000 in the
research paper, Scaling of inefficiencies in the U.S. equity markets: Evidence from three
market indices and more than 2900 securities. 

About The MITRE Corporation

MITRE’s mission-driven teams are dedicated to solving problems for a safer world.
Through our federally funded R&D centers and public-private partnerships, we work
across government to tackle challenges to the safety, stability, and well-being of our
nation.

About University of Vermont

Founded in 1791, the fifth oldest university in New England, the University of Vermont
is a premier research university that places emphasis on undergraduate education.

Contact:

Michelle Sicola Herd

Strategic External Communications
mherd@mitre.org (703) 983-6404

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