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Seismic shocks

Published in Automated Trader Magazine Issue 30 Q3 2013

When the earth moves in a big way, the markets can too. As part of our series on weather and seismic information, Automated Trader talks to a scientist who thinks he may have found a way to gain advance warning of major earthquakes.

While weather forecasting may have made large strides in recent decades, scientists have been unable to make similar progress in figuring out how to anticipate earthquakes. In his book 'The Signal and the Noise', Nate Silver devotes a chapter to the reasons why researchers have been stymied in their efforts to predict seismic events. Unlike atmospheric weather factors, which are observable, seismic activity takes place far below the surface of the earth, where no one can obtain the relevant data to build predictive models.

But what if you could know about a major seismic event before it struck? Or conversely, what if you were trading against others who might have that information? The last major market-moving quake, the Tohoku‐Oki earthquake on Friday, March 11, 2011, occurred just before the close of trade. But Nikkei 225 stock futures traded in Singapore fell about 5% and the impact of the quake rippled across global markets, with the markets continuing to fall the next week.

One scientist, Professor Kosuke Heki of Hokkaido University in Sapporo, believes he may have discovered a method that can predict a major earthquake some 40 minutes in advance. Most people have been interested in this research because of the lives that can be saved, and that was clearly behind the wave of media attention his work generated when it was published in 2011.

But there's also no question such information would be enormously valuable to anyone in the markets. Professor Heki agreed to answer Automated Trader's questions about his research via email.

The Study

Heki's paper appeared in Geophysical Research Letters, an American Geophysical Union publication, in September 2011. That was about half a year after the March 11 Tohoku‐Oki quake, which measured 9.0 on the moment magnitude scale and led to a massive tsunami which caused a nuclear crisis.

Heki discovered that the total electron content (TEC) in the ionosphere spiked higher about 40 minutes before the quake. The ionosphere is part of the upper atmosphere and TEC is monitored by climatologists, physicists and other scientists for a variety of reasons. Monitoring TEC is made possible because of GPS, the same satellite-based system that lets your car give you directions.

If the quake is large enough, it seems to disturb the electron content in the ionosphere to a point where it shows up in measurements well before the quake actually happens.

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