I hate reading comments like this. They’re intellectually lazy and overly cynical. The industry is not a fraud. Yes, shady things happen. But there’s a lot of legitimate research done by capable people.
I used to do research in this industry and I can tell you that, actually, there are a lot of opportunities for novel research based on huge financial details which haven’t been noticed.
What is your experience, that you write off my own experience as well as entire industry, as being illegitimate? Based on another comment you made in this thread it looks like you’ve also worked in the industry, so did you seriously never come across legitimate research efforts or are you just not mentioning those?
I worked on a quant research team at a well known fund. Without going more into details, I grew up around people making 20 million a year at funds. The real money is made when a ceo tells you how the new company innovations and business lines are coming along. The long term bets on companies is where big money is made. Flipping stocks all day at the alt data/quant funds is overrated and a race to the bottom. When everyone has the same data it’s worth nothing. These places are doing well now because markets are booming, even a turkey can fly in a tornado. Don’t get confused
The top quant funds perform exceptionally well even through bear markets. That's a fact and a matter of public record. Likewise the funds which rely on alternative data the most aren't even primarily quantitative in their strategies, so you shouldn't be grouping them together.
I don't know where you worked, but please stop perpetuating the myth that everything in finance is shady business in smoky rooms. Contrary to what you're saying, a lot of the alpha generated at the best firms comes from novel approaches to data analysis, not the uniqueness of the data itself.
There is real ingenuity in research which translates into consistent alpha. I'm not going to argue it's literally the maximally valuable way to generate returns in finance, but you're dismissing it entirely. Not everything in trading is relationship building and trying to curate data no one else has.
There is room to combine otherwise public datasets together to find novel insights, and this is frequently done.
Sure the quant funds make money, a few people do well, lots of engineers make 500k. Places like Pimco, Goldman, Baupost Group, Fidelity, etc. the traditional finance firms work differently. For example, the bond market which is massive compared to equities, was rigged like 30 years ago by Goldman and Pimco to stop computerized trading of corporate bonds. What this did was keep the bond trading in the hands of a few firms, the tops of whom all pay themselves 10-50 million a year.
Equities is being run over by ETFs, none of these funds have that much alpha, HFT was just some stupid inefficiency firms realized that could do in like 2008, by 2019, HFT is barely profitable. Whenever these firms make money from fast trading, what they are really doing is stealing money from pension funds and peoples 401ks. Clipping and front running trades shaves a little from the price and puts it into the pocket of some "genius" at Two Sigma. You can shout all you want about how intelligent these people are, but the whole thing is crooked. Secondly, watch how fast these places go out of business when the market tanks. Massive bull runs and "prestige" have these guys claiming to be kings of the world, but really, the financial industry is about raising a ton of investment money and figuring out how these fund managers can siphon it off into their own pockets. Which is why ETFs are so popular now.
When Two Sigma starts making too much money, the sec starts knocking on their door. Because its obvious theyre exploiting the market and extracting wealth. So they dial it back, and keep just some. This kind of thing is never talked about in public, but it happens all the time. Constant negotiation between which trades are ethical between computerized traders and the US government. All that 50 Billion in wealth really came from Goldman. Go look on linkedin, all the top people there jump between TS and Goldman.
I could go on and on about the scam of quant, I know the industry intimately.
> Equities is being run over by ETFs, none of these funds have that much alpha, HFT was just some stupid inefficiency firms realized that could do in like 2008, by 2019, HFT is barely profitable. Whenever these firms make money from fast trading, what they are really doing is stealing money from pension funds and peoples 401ks. Clipping and front running trades shaves a little from the price and puts it into the pocket of some "genius" at Two Sigma. You can shout all you want about how intelligent these people are, but the whole thing is crooked. Secondly, watch how fast these places go out of business when the market tanks. Massive bull runs and "prestige" have these guys claiming to be kings of the world, but really, the financial industry is about raising a ton of investment money and figuring out how these fund managers can siphon it off into their own pockets. Which is why ETFs are so popular now.
This is entirely false. I'm not sure where you think you're getting your information from, but it is not accurate. Most highly successful quant firms didn't get that way by raising a ton of assets. They got that way by turning a small amount of seed money into a lot, via returns.
> When Two Sigma starts making too much money, the sec starts knocking on their door. Because its obvious theyre exploiting the market and extracting wealth. So they dial it back, and keep just some. This kind of thing is never talked about in public, but it happens all the time. Constant negotiation between which trades are ethical between computerized traders and the US government. All that 50 Billion in wealth really came from Goldman. Go look on linkedin, all the top people there jump between TS and Goldman.
This is also just absurdly untrue. Nobody is knocking on Renaissance's door when they make too much money, if they did, they wouldn't have been posting the kinds of returns that they do.
You're talking like you're familiar with the industry, but so am I. And basically everything you've said here is just completely wrong. Maybe you worked at a bad firm or something, I don't know. But there are players here who are consistently making large amounts of money from statistical arbitrage, and high frequency trading that has nothing to do with exploiting inside information. And no, the SEC is not knocking on anyone's door for "making too much money".
The top quant firms also get a fair amount of internal corporate data that lets them properly populate their models.
Every model has significant biases and weaknesses. If a model survives more than one up or down cycle, it's generally a sign that the model is based on leaked data and not on the actual analytic prowress of the firm involved.
But I'll humor your implied point: LCTM's failings have nothing to do with the core thesis I'm rebutting, which is that the only value in financial trading is provided by shady backroom dealings.
I'm not as cynical as that guy. I don't think quants are a "scam" or whatever. However, I do think the the top funds represent survivorship bias. Everybody's a top fund, until they aren't. As for RenTech, the fact that Simons stepped down in 2008 says maybe things weren't all so rosy behind closed doors.
> The industry is not a fraud.
> there are a lot of opportunities for novel research
These are not mutually exclusive.
When presented with the opportunity to do either insider trading (and easily getting away with it) or paying for novel research, which will most managers choose? Why not choose both?
> What is your experience, that you write off my own experience as well as entire industry, as being illegitimate?
You hardly need this one person's data point. The massive success of passive investing is all the evidence anyone needs.
(I also worked in Wall Street just before and during the financial crisis, and my experience is consistent with the industry being more fraud than not fraud. I absolutely am not implying that you yourself didn't produce value or that no one is honest, but value/honesty are not the norm.)
Speaking as a former corporate lawyer...he's not wrong.
Executives have been leaking internal data to trading firms for decades. The trick is for the analyst to come up with some plausible explanation for why they reached the conclusion to buy (or sell), which is generally easy to do.
Sure, but you're not describing the way hypotheses are developed at DE Shaw, PDT, etc. I'm not debating that happens at places which focus (even if only ostensibly) on fundamental analysis.
I used to do research in this industry and I can tell you that, actually, there are a lot of opportunities for novel research based on huge financial details which haven’t been noticed.
What is your experience, that you write off my own experience as well as entire industry, as being illegitimate? Based on another comment you made in this thread it looks like you’ve also worked in the industry, so did you seriously never come across legitimate research efforts or are you just not mentioning those?