Wednesday, May 20, 2009

The Future Of Factor Diversification

Innovative Quant Solutions out with a brief looking at the future of quant factors and whether it even makes sense to diversify these at all in 2009. This is a very critical question as the market's recent action keeps flustering quant managers who are constantly attempting to rejigger models and signals, and the recent market action demonstrates that virtually all classes of quant managers have either converged on the same profitable strategies, or have been blown out of the water so badly, that many are in danger of terminally unwinding.

As is so often the case, with all managers chasing the same stragies and ending up on the same side of the trade, leaves two major open questions:

1) who is on the other side of the trade?
2) what happens when the herd shifts from one side of the boat to the other?

Data courtesy of Sphere: Related Content
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