Tuesday, August 12, 2008

Challenges in Quantitative Management

At last, I got round to finishing Challenges in Quantitative Equity Management, a freely available CFA Institute Research Foundation monograph by Fabozzi, Focardi and Jonas. The book is based on surveys and conversations with practitioners of quant management, capturing the collapse in industry outperformance following the summer of 2007. I was particularly interested to find out whether there would be any attention paid to XBRL, which I suspect should be quite relevant to quant management, but it wasn't even mentioned throughout the book. That's not to say it is considered to be irrelevant: Too many people using similar models and the same data was considered to be one of the major challenges to the quant approach going forward. 

Nevertheless, it is a worth while read for a number of thoughts and discussions, such as the distinction between quantitative and judgmental investment processes, the style correlation of quant management (which tend to be value-driven), the negative correlation between fund capacity and alpha-generation and, last but not least, the adaptive markets hypothesis as opposed to the efficient markets hypothesis. 

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