Bloomberg: Sixteen Leading Quants Imagine the Next Decade in Global Finance

Bloomberg: Sixteen Leading Quants Imagine the Next Decade in Global Finance

Some of this was very interesting and worth a quick read thru

Quote 1 “It’s no longer enough to apply quantitative tools in investing; these tools have to be used intelligently, with awareness of their often subtle vulnerabilities. These changes will drive a growing divide between quants who blindly follow wherever the data leads them, and quants who ask, “what are the limitations of our methods, and where can they go wrong?” In time, the latter—and their customers—will win.”

Quote 2 “As the techniques the quant pioneers discovered proliferate, the industry’s leaders and intellectual frontier will focus on creating models based not only on historical data, like today, but on a fundamental and more data-driven understanding of human behavior. Past patterns can be used to predict future prices but measuring and analyzing human biases in myriad circumstances will lead to the creation of an entirely new suite of models, less prone to the curse of overfitting and to crowding. These techniques will not just be the preserve of the investment industry but also be used by policy makers and central bankers.”

Quote 3 “Most of the fundamental investors will become familiar with principles of quant strategies and will incorporate it in their investment process. This will cause traditional quant strategies (e.g. factors) to lose effectiveness and become increasingly volatile. The investment landscape will become saturated with passive and quant strategies, and this will increase market fragility and make it more prone to tail events. The next severe recession will put the new market structure to the stress-test, and that may lead to widespread failures. Quant models that are calibrated on historical data will not be able to anticipate these events. In the aftermath of the crisis, investors and managers will aim to re-introduce more human oversight and discretionary decision making in the investment process and liquidity provision.”

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