What It Takes to Win at Quantitative Investing

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A recent podcast on Bloomberg offers some interesting perspectives on quantitative investing.

Interest in quantitative investing strategies continues to grow; however, as the space gets more competitive, making money and winning gets harder and harder. Computation costs alone can be prohibitive. On the latest episode, we speak with Columbia Business School professor Ciamac Moallemi about how the world’s best quant funds thrive.

quantitative trading

The key takeaways are,

  • Quantitative investing has two key characteristics. The first characteristic is that the investment process is entirely systematic. The second characteristic is that quantitative strategies are active investment strategies.
  • The market is inefficiently efficient, or efficiently inefficient, meaning that there exist inefficiencies, but it’s a competitive game, and there are lots of smart people with a lot of resources out there who are going after these inefficiencies, and when they identify them and trade on them, the inefficiencies will disappear.
  • The key to winning in quantitative investing is not about identifying some flaws in the market or some inefficiencies or some opportunities to make money. It’s about having a team and a process to keep finding those over and over again.
  • Historically, much of quantitative investing has been built on what was called “technical models”, where basically you’re using historical price and trade data to forecast future price movements. What we have seen emerge over the past 10 years is a shift towards alternative data.
  • Quantitative investors operate quite differently than research groups in big tech places. Research conducted in laboratories of big tech companies like Google, Microsoft, or Bell is not that different than in an academic institution. The main output is publication in research journals and conference papers. In the quant world, the research process is, however, much more applied, and there is no incentive for publishing research results.
  • What value does quantitative investing actually create for society? Quantitative investing is about arbitraging the small inefficiencies, so maybe it will make prices slightly more efficient. But is that worth the enormous infrastructure investment being spent on it?

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