Will April 2009 Be Quantitative Or Qualitative?

With little left to invest in and most things having been taken over by the US government, back in January two analysts from the quantitative group at ING Investment Management in New York combined research and modeling skill to hatch a diabolical plan: hit every Manhattan subway stop in under 24 hours.  

Hedge fund analyst Matt Ferrisi and quant analyst Chris Solarz gathered notoriously faulty MTA schedule information, ran regression examination, considered trillions of combinations and possibilities with complex software, and ultimately plotted a route that would cover all 468 stops in 22 hours 45 minutes. And deliver them at Grand Central stop for a complete day of work.  consequence: Precisely 22 hours and 51 minutes later, the bleary-eyed duo climbed the platform and cruised onto Park method, victors and new Guinness World Record holders.  

Lesson, all you IROs wondering what in the name of socialism this has got to do with your stock’s trading?  Well, 2009 is destined to be a good year for quantitative investors. Why? Quant models work best to manage risk in unpredictable markets. Tales of destruction despite, a number of high-profile quant investment shops compiled great returns in 2008, including Renaissance Technologies, up 80%.  What has changed in 2009?  Rationality and market efficiency keep unsubstantiated rumors, the economic outlook is bleak, and central edges are all enthralled with the Wii of the banking world, “quantitative easing” (more on that another day).  These conditions represent the kind of ecosystem where quants mapping the shortest route by a great maze of variables, a la Ferrisi and Solarz, might thrive.  

So what to do?  Kick your IR Cool Quotient up a level by learning more about quant trading.  You already know: knowledge is strength.  For example, at this week’s link below, you can read about ING’s view (since we picked on their enterprising analysts today) of quantitative markets and the way that firm maps market sentiment, quality, and value to construct a view of opportunity.  

Right now, with the exception of stronger than expected trading today (Mar 31), we’re not surprised by market activity, and we expect money will shift from equities to other spread opportunities in April. As ING notes, however, markets always return to fundamentals at some time.  The fewer government subway stops between flushing detritus and finding value, the quicker we’ll get there.

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