Hi all,I am looking for some books or references for a beginner in quantitative equity trading. I am particularly interested in how a strategy is originated and backtested, what popular models are used. I got some conflicting ideas - on the one side, I read about practices using PCA and different shops just pick different factors; on the other side, I read that all shops are keeping their way a secret (I doubt its effectiveness since employees move around). Can someone shed some light?Thanks,GH

two different spectrum - mostly trading firms (stat arb, mostly 10 days to 3 weeks; there are some high freq firms with less than 2 days & rarely successful) or mostly investing firms (called quant market neutral, mostly 3-9 months horizon). for the quant funds, signals or factors apart, there are two related but different approaches to portfolio construction. for the BGI version read the Grinold and Kahn book (optimize to get better risk control, but lose control of the what & why). for the Panagora version read the Qian, Hua & Sorensen book (use smart analytic form with ideas derived from optimize, but with control on what & why); it's a choice. All other books are mostly junk. for signals & factors there are a huge number of plain vanilla factors covered in academic literature starting the much famous and much needlessly over-quoted French and Fama papers. the strategy has been highly commoditized over the years. any fund that is trying to sell anything based on a secret are kidding themselves (actually not many these days are in the secret bucket).

Check out: Statistical Arbitrage: Algorithmic Trading Insights and Techniques (Wiley Finance)Active Portfolio Managementhttp://quantyjobs.blogspot.com/2010/10/i-recommend-these-books-for-pre.html

thanks. i like the link

Thumbs up for G & K and Qian, Hua and Sorenson. G & K is very good and a good one to start with. Quantitative Equity Portfolio Management develops the ideas from G & K, and personally I like the way it looks at many things. As pb273 says though, it's a space which has been looked at it to death, and alot of guys blew up in 07 royally doing this stuff. On the stat arb side, please do not buy Statistical Arbitrage: Algorithmic Trading Insights and Techniques. This is by far the worst book I have ever bought in this area, and I have shelves and shelves of quant books. How a book manages to talk about so many ideas, but actually supply zero substance in any of them is beyond me, but after finished this book I had a feeling of emptiness that I've never had reading any other book. A good one to start with I think would be Market Models by Carol Alexander. It has some nice topics on time series, cointegration in addition to things like GARCH and even some chaos techniques. I know she has released a recent series, but don't have these so can't say how good they are. Maybe an upgrade from the previous work so may be the one to go for now. For a nice readable intro into Microstructure I would start with Trading and Exchanges by Larry Harris. You can then look at things like O'hara, Hasbrouck if you want to develop further in the high frequency area.