A Summer of Fat Tails

Not for the first time, quantitative, or rules-based, strategies have come under widespread scrutiny and debate over their future. The latest critical focus on quant funds follows the severe market dislocation and turbulence experienced across financial markets globally this past summer. The magnitude of the market volatility caught many participants by surprise, and now threatens to spoil the annual performance in a year that had started with so much promise. While several investment styles have been impacted by the freezing up of liquidity into some market segments, and marking to market of subprime assets, leveraged loans and other structured instruments in their portfolios, quantitative strategies appear to have been targeted for much greater criticism this time around than at earlier incidents of market disruption.

Author:
Dr. Paul Alapat oversees Quantitative Services and Information Technology at Amba Research. He has over 10 years experience in capital markets on both the research and trading sides. Paul has a PhD in International Finance from UCLA, an MBA from IIM Calcutta, and a BA in Economics from St. Stephen’s College, Delhi.