The Economist turned its critical eye at quantitative hedge funds recently, noting the poor performance of such “black box” strategies since the 2008 Financial Crisis. The article’s headline (“Computer Says No”) is a wry reference to a British sitcom called Little Britain, a humorous touch that will have been missed by many U.S. readers.
Quant practitioners predictably note the absence of rational markets (isn’t that ALWAYS why managers lose money) and place the blame squarely at policymakers and artificially low interest rates as the reason their models can no longer make reliably profitable predictions. It may also be that this sector of the hedge fund business is overcapitalized, with assets having grown from $91 billion to $215 billion in four years. While the underlying markets such as equities and bonds offerplenty of liquidity, perhaps the inefficiencies such algorithms are meant to identify are being competed away, at least by the big ones.
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