Great article on Quants

[ChemEng]

If youve ever wondered about Quants, how they work, how they think, and their role on our markets, this is a great article to walks you through the process in baby steps.

Enjoy!
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http://www.technologyreview.com/Infotech/19529/

"CDOs had functioned as the collateral on the quants' short positions. When the subprime crunch squeezed the financial markets, the value of those CDOs declined, forcing quants to increase the collateral in margin accounts, buy back the shorted stocks, or both. But in either case, in order to supplement their shrinking collateral, quant funds were forced to sell strong blue-chip stocks, whose prices consequently fell. At the same time, as quants bought back shorted stocks, the prices of those stocks increased, demanding the posting of yet more collateral to margin accounts at the very time that the value of CDOs was suffering. That the quants were, apparently, long on the same strong stocks and short on the same weak stocks was a result of a number of strategies, pairs trading among them."

 

[Griffin]

If you've read the book "Jurassic Park", there is a great dialogue in there about randomness that was only partially captured in the movie. If you read that and enjoyed it, There is a great book about the periodicity of extinction events, called "Extinction: bad genes or bad luck" by David Raup - it's a real quick read but a great eye opener into the world of data analysis. It will give you a real insight to the application of mathamtically describable patterns - and how widespread their applications are.

 

[fabijo]

This is something to think about while some of us here are trying to come up with the perfect system:

a trading algorithm is only as good as its model. Unfortunately for quants, the life span of an algorithm is getting shorter. Before he was at RiskMetrics, Gregg Berman created commodity*-trading systems at the Mint Investment Management Group. In the mid-1990s, he says, a good algorithm might trade successfully for three or four years. But the half-life of an algorithm's viability, he says, has been coming down, as more quants join the markets, as computers get faster and able to crunch more data, and as more data becomes available. Berman thinks two or three months might be the limit now, and he expects it to drop.

 

[Bullitt]

A bit too much for me, but maybe someone could make use of this article. They do a good job with explaining arbitrage strategies though.

What happened to Quants in August 2007?
http://web.mit.edu/alo/www/Papers/august07.pdf

 

[Bullitt]

More on how quants have really messed up the market this past quarter. Ever wonder what causes the big moves late in the trading day? Very informative article.
http://www.ft.com/cms/s/0/553fea68-a68e-11dc-b1f5-0000779fd2ac.html?nclick_check=1

Maybe these quant funds are already 'factored into the market'. It's just become so diluted with them that the chances of success by way of a quant fund appears to be diminishing. Even the simple 'Dogs of the Dow' worked for a few years. No system works forever.

 

[Silverbird]

More on how quants have really messed up the market this past quarter. Ever wonder what causes the big moves late in the trading day? Very informative article.
http://www.ft.com/cms/s/0/553fea68-a68e-11dc-b1f5-0000779fd2ac.html?nclick_check=1

Maybe these quant funds are already 'factored into the market'. It's just become so diluted with them that the chances of success by way of a quant fund appears to be diminishing. Even the simple 'Dogs of the Dow' worked for a few years. No system works forever.

"I am so much more capable than you are of supervising the ship, and I have such enthusiasm for the mission and confidence in its success." HAL (2001-A Space Oddessy).
...is trumped once more by:
"Garbage in, Garbage out." - Computer axiom.:notrust: