The efficient market hypothesis succumbs to technology. In the time that it takes your request to your favorite finance portal to reach the local Comcast router, the robotic trading computers have already downloaded the trading histories of the entire market, analyzed them for patterns, created a strategy, and executed thousands of orders.
It is impossible for anyone else to compete against them. In less than a blink of an eye (approximately a 30th of a second), the robots have made enough money to make human traders envious. But they are robots and know nothing about the true valuation of the company–all they do is recognize rapid fluctuations in demand and cater to that (if demand is falling, quickly sell short and immediately buy back at a lower price; and if demand is rising, quickly buy long and immediately sell back at a higher price).
That makes me wonder: Since they don’t fulfill the purpose of the market, which is to increase liquidity and to efficiently and fairly value assets, should high speed trading be allowed? They are essentially more sophisticated speculators, and as such their only purpose is to drain money from more value-focused investors.
Instead of contributing to the efficiency and accuracy of the market, they distort it. Although I don’t think it’s possible to decide when automatic trading becomes too parasitic, I believe that it should be regulated and kept under control. We need to be careful not to discourage true investors from participating in the market and destroy the entire spirit of investment.