Computers & The Stock Market

At issue in the stock market is the definition of a routine decision. The most contentious example of this dilemma is program trading (Clark, 1989). Program trading is based on the use of computerized decision models that take much of the decision-making prerogatives related to huge pension fund and mutual fund trades away from human operators. It is also true, of course, that human operators designed and constructed the decision model.

A major contribution of computer technology to the decision-making process in the stock market is the conservation of time with respect to dealing with information overload. A second important contribution is that computers enable managers and traders to make better use of often inadequate information. Further, computer technology makes it possible to efficiently manipulate information so that it can be used effectively in problem-solving models.

No "decision can be better than the information upon which it is based" (Gortner, 1986, p. 132). One of the more important characteristics of computer technology is the capability it creates to provide a vast amount of information to a decision-maker in a relatively short period of time.

The major operational functions of investment banking firms are underwriting, dealing, brokerage, and the provision of financial advice (Pugel and White, 1985). The underwriting function involves origination, risk-bearing, and distribution. origination is concerned with defining the essential characteristics of an investment offering (debt or equity, pricing, timing, method of distribution, and so forth). Riskbearing on the part of an investment bank involves the purchase by a bank at a fixed price of a new securities issue, for eventual sale to the investing public (Pugel and White, 1985). In this context, the investment bank is at risk until the new issue is sold. Distribution is the act of selling the issue to the investing public. The provision of financial advice accompanies the underwriting function, although financial advice is also provided in other instances, such as, in conjunction with merger and acquisition decisions.

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