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ArthurDent
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Do quant strategies add value to the world?

November 16th, 2008, 10:09 pm

QuoteOriginally posted by: dionysiusArthurDent: How does a new programmer not add value? Without them, softwares wouldn't be built.On the margin, a new programmer in a company that has 60k employees adds little value. Actually it is worse - New programmers don't build anything new at MSFT or any other big bureaucratic place and are really "code maintenance" guys for several years before anyone even takes them seriously. Yes, even the ones with PhDs are basically twiddling some tiny knob somewhere for quite a while. Someone here used to have a signature saying "Code Janitor", which is VERY appropriate.Whether as a quant in a big bank/hedgefund or as a programmer in MSFT/GOOG, you are part of a big system, whether that is adding value really depends on your definition of value. Ultimately one might say that everyone in the services industry and knowledge-based industries is not adding value! After all what value does a management consultant add? But then, why do we still need them?QuoteTrading for general goods add value since you're bringing goods from places of higher supply vs demand (i.e. cheap prices), to places with lower supply vs demand (i.e. expensive prices). Physical location obviously matter much less for financial instruments, which is why quant strategies are an exception.If say the NYSE has more price anomalies than say the LSE, and RenTec exploits that by trading pairs across countries, then they are not doing anything much different from your example!QuoteAnyways, the sense I get is that people are resigned to the reality that quant strategies don't actually add value to the world.I don't find that to be the right question to ask even! It's like the Russian guy who asked "Who controls the supply of bread to London?" If quanting is not valuable, it will automatically disappear, eventually.What I do find useful to ask is "Do I like what I am doing? Am I using my skills to the best I can? Am I working at the edge of my abilities, if not, how can I do so?"Let me now ask another question - is any pure research valuable? So if you had an offer to join IAS Princeton would you turn it down because it adds no value to the world?Quote Cuchulainn:I have been a member of Wilmott since 2004 but it's only in the last 6 months or so that 'meaning-of-like-type' questions have been posted. What's the reason in your opinion? Market correction? Both markets - that for financial objects, as well as that for financial jobs? In 2000, the Tech industry lost a lot of HTML "developers", perhaps we are going through a similar phase in finance.
Last edited by ArthurDent on November 15th, 2008, 11:00 pm, edited 1 time in total.
 
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dionysius
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Do quant strategies add value to the world?

November 16th, 2008, 10:28 pm

QuoteIf quanting is not valuable, it will automatically disappear, eventually.This is what I'm afraid about. On the one hand, I want to work in a job that adds value. Otherwise, I wouldn't truly love my job, which answers the "Do I like what I am doing?" question. On the other, I think quant jobs ARE at risk of disappearing precisely because they don't add value. It seems that a lot of experts including Paul Volcker seems to think quant jobs will shrink ( Even if somehow quant jobs don't significantly scale back after this crisis, I will always be mindful that it will eventually scale back.QuoteLet me now ask another question - is any pure research valuable? So if you had an offer to join IAS Princeton would you turn it down because it has no value?What do you mean by pure research? You mean knowledge for the sake of knowledge? Thinking about hypothetical pink elephants and arguing over such possibilities don't seem to be very valuable. Unfortunately, that seems where a lot of academics are headed towards. Not all academics, but some. Some people love academia and I respect that, but me, I'd rather shoot myself.
 
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jomni
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Do quant strategies add value to the world?

November 16th, 2008, 11:53 pm

QuoteBut when someone employs high frequency trading, he's not being an investor. He's merely aiding in "price discovery". He's also adding liquidity to the market.
Last edited by jomni on November 16th, 2008, 11:00 pm, edited 1 time in total.
 
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deepvalue
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Do quant strategies add value to the world?

November 17th, 2008, 7:02 am

QuoteOriginally posted by: jomniHe's also adding liquidity to the market. that's like saying that burglars are "adding liquidity to the market" because they put your tv set up for sale at the pawn shop.
 
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deepvalue
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Do quant strategies add value to the world?

November 17th, 2008, 7:04 am

QuoteOriginally posted by: dionysiusI would think it adds value because you're generating demand for a security. well, any broker can do that by churning his customer's account. why do you need a quant to churn your account?
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exneratunrisk
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Do quant strategies add value to the world?

November 17th, 2008, 8:50 am

If we believe in the evolutionary development of an optimal financial system, yes. Evolution, like from quark-to-jaguar (Gell Man), spans the story of many, many small selective steps, dos and undos (wrong and right directions). Evolution works very well under bad conditions, stimulated by bad-doing participants in a population.So, yes all quants work for a better future
 
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Cuchulainn
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Do quant strategies add value to the world?

November 17th, 2008, 12:44 pm

QuoteOriginally posted by: ArthurDentQuote Cuchulainn:I have been a member of Wilmott since 2004 but it's only in the last 6 months or so that 'meaning-of-like-type' questions have been posted. What's the reason in your opinion? Market correction? Both markets - that for financial objects, as well as that for financial jobs? In 2000, the Tech industry lost a lot of HTML "developers", perhaps we are going through a similar phase in finance.There were also a *lot* of VB6 programming going on as well. After that in 2000 dig in heels and use Java and C/C ++. C# 1.0 was around at the time but only now is it coming into its own imo. If you could spell "Visual Basics" in those days you could get a job. It was a real rollercoaster!
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torontosimpleguy
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Joined: July 12th, 2004, 5:51 pm

Do quant strategies add value to the world?

November 17th, 2008, 2:07 pm

QuoteOriginally posted by: exneratunriskIf we believe in the evolutionary development of an optimal financial system, yes.If you were talking about Hegel's "transition from quantity to quality," it was a smart observation.======================================Moreover one first needs to grasp what value secondary stock market adds to the market economy. Then s/he can 'philosophically' talk about value of quants and stock traders to the society.
 
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actuaryalfred
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Do quant strategies add value to the world?

November 17th, 2008, 6:12 pm

Follow-up question:Do casinos add value to the world?
 
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HOOK
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Joined: October 10th, 2008, 5:15 pm

Do quant strategies add value to the world?

November 17th, 2008, 6:54 pm

Yes, they do. If it wasn´t for cassinos, we probably wouldn´t have the development of probability theory. Descartes, Chebishev, and others were great gamblres.Not to mention the origin of the term "Monte Carlo"
 
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dionysius
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Do quant strategies add value to the world?

November 17th, 2008, 7:31 pm

Quotewell, any broker can do that by churning his customer's account. why do you need a quant to churn your account?Don't know if you understood me correctly. Never said we need quants for anything - in fact, that is the question.As for the evolution of financial markets, is that really all that valuable?Suppose quants all just disappeared all of a sudden - to, I don't know, math heaven or something. Would the world really miss us in the long term (assuming there are no more quants period)?
 
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cigor
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Joined: October 10th, 2008, 3:32 pm

Do quant strategies add value to the world?

November 17th, 2008, 7:32 pm

If quant is involved in high frequency trading strategies he either succeeds or not. If he does not succeed he is eventually removed from the sample and forced to “add value” somewhere else. If he succeeds, that mean he has likely found market inefficiency. By exploiting it, he makes the market more efficient. This ultimately has an impact in optimal capital allocation in the economy.With the other tasks such as “risk management”, marking to models, it is debatable how that add value, given recent period….
 
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PlasticSaber
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Do quant strategies add value to the world?

November 17th, 2008, 9:10 pm

QuoteOriginally posted by: actuaryalfredFollow-up question:Do casinos add value to the world?Along the same line, do fashion designers, game developers, chefs, sportsmen.... add value to the world? Just a short twenty/thirty years ago, roughly half of the world believed/ forced to believed that those who did not enhance the productivity of the society (in a narrow sense) were parasites..... In this aspect, maybe it is better to let the market to decide.
 
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dionysius
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Do quant strategies add value to the world?

November 17th, 2008, 9:49 pm

QuoteAlong the same line, do fashion designers, game developers, chefs, sportsmen.... add value to the world? Just a short twenty/thirty years ago, roughly half of the world believed/ forced to believed that those who did not enhance the productivity of the society (in a narrow sense) were parasites..... In this aspect, maybe it is better to let the market to decide.Just because you can earn money from something, doesn't mean that your services contribute to society - e.g. drug dealers. As for casinos, I would like a trip to Vegas now and then, so they provide some value in entertainment. But there's a reason why gambling organizations need licenses - sometimes, what people demand are not really what is good for society.If fashion designers were missing from the world, I'm sure the world would miss nice looking clothes. If there were no chefs, we'd miss the food. No sportsmen? Well, I'd be depressed, hah. What if there were no quants? What would happen?
 
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jomni
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Joined: January 26th, 2005, 11:36 pm

Do quant strategies add value to the world?

November 18th, 2008, 12:03 am

QuoteOriginally posted by: actuaryalfredFollow-up question:Do casinos add value to the world?at least it provides jobs
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