The Berlin Wall and market information flows

I visited Berlin over 15 years ago. It’s one of those places, where history literally seems everywhere, whether it’s strolling through the Brandenburg Gate or past the Kaiser Wilhelm Memorial Church, which has been left as a partial ruin as a reminder of war. Only 15 years before my visit, the Berlin Wall had fallen. Today is actually the 30th anniversary of the fall of the Berlin Wall. This week I saw a program on TV with John Simpson, the chief foreign correspondent of the BBC at the time. He discussed the historic period of the fall of the Berlin Wall, which he witnessed (the whole show is available on iPlayer for the next month).


Simpson had always thought that the trigger for the fall of the Berlin Wall was a live press conference on 9 Nov 1989 by a spokesman of the DDR, Günter Schabowski, who mistakenly said East Germans would be allowed to travel immediately. In fact, the policy discussed by the government of the DDR was to introduce this policy gradually, suggesting a communication breakdown. By that same evening East Germans were trying to cross the border with the West, and the Berlin Wall fell.


According to Professor Sabina Mihelj, who Simpson interviewed, the immediate reaction to the live press conference was not the only reason which spurred East Germans to try to cross into the West. She noted, that the press conference was picked up by West German TV, who then reported on it, possibly with some additional interpretation. These later West German TV broadcasts were then viewed in the East. She believes that these messages from the West were perhaps even more of an important trigger for spurring East Germans to try to cross to the West.


Would have the Berlin Wall eventually fallen without this chain of events starting with a mistaken live press conference? I guess so, although we’ll never quite know. What the whole episode does illustrate, is how the flow of information and data can often be quite haphazard and unpredictable, and the important role of interpretation. Financial markets live off data, whether that’s news reports, price action or increasingly alternative data.


Financial markets are bombarded by so much information flow, means that in practice, different market participants will end up receiving different data and will also process them in different ways. Furthermore, just as with our Berlin Wall example, it is the interpretation of data which is key, rather than simply the data itself. The only way to make sense of such a large amount of data is through quantitative means to summarize it into usable insights. Of course it doesn’t necessarily mean that everyone has to be a systematic traders. However, even for discretionary traders, having data scientists and tools to analyse large amounts of data is become increasingly important. It’s difficult to make decisions, when a lot of data is missing.


It is also important to understand that data is never sat in an isolated bucket. In order to make sense of the market we need to augment many market datasets together. With macro space, it can be somewhat trickier to understand what to do with data, as it isn’t always tickerised (to use alt data lingo). You might be looking at what monetary policy is doing to trade FX, even if the in speeches the Fed and other central banks may not explicitly mention currency markets. It’s up to traders and researchers to fill the dots in between. Whilst macro markets don’t have as many alternative datasets as equities, I do think that this difficulty in utilising them in macro space might actually be beneficial. Indeed, it might have the effect of reducing the alpha decay of alternative data within macro space, given that there are more degrees of freedom associated with how you can use such datasets.


Of course, none of this is particularly easy. But if it were easy, it financial markets wouldn’t quite as exciting, would they? The only thing left for me to do, is to book another trip to Berlin, it’s been too long.