Hedge Fund
Serenity Alternative Investments Blog - Understanding Quantitative Investing
July 2020
Serenity Alternative Investments Blog - Understanding Quantitative Investing
Statistical analysis of the world’s economies and stock markets moved from academic abstraction to Wall Street reality during the second half of the 20th century, as computers became more powerful and less costly. Most investment management firms use this kind of quantitative analysis to inform their decision-making process, but “quant investing” as a distinct style places stat analysis front and center. Quant investing attempts to reduce the process to its scientific and statistical core, eliminating emotional, fallible human judgment from the equation as much as possible.
The actual “product” of a quant investment firm isn’t the portfolio itself, but the software model that guides their investment decisions. Market-savvy programmers — or code-savvy investors — create these by sifting through huge quantities of stock and trading data, in search of patterns. Once a promising pattern is identified, the programmers will create an algorithm to track those factors and assess the optimal time to buy and sell a given security. The code must be tested rigorously under simulated market conditions and with live data, before it’s put into use as an investment tool.
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