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from a reader posting on bill fleckenstein's site:
Today, as we are getting ‘great’ news from GS (they lined up investors to deleverage their quant funds from 6x to 3.5x), I wanted to comment why quant or statistical arbitrage funds are so crucial for equity markets.
Wall Street Journal reported $40 bil invested in quant funds. Taking into account proprietary trading groups within investment banks, as well as various related strategies, I can guess the real number is at least twice of this amount.
From experience, I can conservatively estimate that a typical $1 bil. quant long/short quant fund can trade on average somewhere around 25 mm shares per day, more or less depending on strategy mix. That is combined 1 bil shares per day if we use the Wall Street Journal reported numbers.
To put it into perspective -- on some days 50% or more of volume on major exchanges could be attributed to quants.
In the past few weeks many quant funds were shut down or delevered. These events will have major negative implications on available market liquidity and volatility globally. As a result, global equity risk premiums will be sharply revalued as commonly used risk/return assumptions are shuttered and waves of redemptions hit equity funds of all stripes and colors
Today, as we are getting ‘great’ news from GS (they lined up investors to deleverage their quant funds from 6x to 3.5x), I wanted to comment why quant or statistical arbitrage funds are so crucial for equity markets.
Wall Street Journal reported $40 bil invested in quant funds. Taking into account proprietary trading groups within investment banks, as well as various related strategies, I can guess the real number is at least twice of this amount.
From experience, I can conservatively estimate that a typical $1 bil. quant long/short quant fund can trade on average somewhere around 25 mm shares per day, more or less depending on strategy mix. That is combined 1 bil shares per day if we use the Wall Street Journal reported numbers.
To put it into perspective -- on some days 50% or more of volume on major exchanges could be attributed to quants.
In the past few weeks many quant funds were shut down or delevered. These events will have major negative implications on available market liquidity and volatility globally. As a result, global equity risk premiums will be sharply revalued as commonly used risk/return assumptions are shuttered and waves of redemptions hit equity funds of all stripes and colors
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