On Quants

One of the disadvantages of blogging is that the blogger never gets the chance to make a complete argument. Topics worth discussing often would justify a book or at least an article. Fortunately, there are lots of people writing books and articles. Thus, readers of The Hedged Economists should expect periodic references to relevant books, news items, or articles. They will often be references to pairs of items since most issues can be addressed at multiple levels.

For today, however, I just want to cite the “Other Voices” section of this week’s edition of Barron’s. In an article entitled “Wall Street's New Race Toward Danger” by Scott S. Powell and Rui Gong (http://online.barrons.com/article/SB126783128753256821.html) there is a discussion of quantities trading. It is very relevant to the previous discussion of trading fees and prop trading. Basically they make the same point about the risks associated with quantitative trading.

If you want an enjoyable light read about quantitative traders, try “The Quants” by Scott Patterson. If you’re more interested in the details of the types of trades quants do, you’re going to have to dive head first into the field. I don't know of a how to for the non-quant. There are many good descriptions of arbitrage and quantitative analysis of markets, but they fall short of providing a feel for the field. But, if you like math and statistics, I recently re-read “A Non-Random Walk Down Wall Street” by Andrew Lo and Craig MacKinlay. It is a good reminder of what behind the curtain.