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dionysius
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Do quant strategies add value to the world?

November 15th, 2008, 11:51 pm

Hello there. I'm a PhD student studying financial mathematics, and considering a career as a quant. One thing that is bothering me about this career track, is that I'm having a hard time seeing just how quants add value to our world.Take for example high frequency trading strategies. If an investor buys and hold a security for a long time (a la Buffett), then he or she is helping the company expand. But when someone employs high frequency trading, he's not being an investor. He's merely aiding in "price discovery". While this IS a benefit, is it such a great benefit that the trader deserves 6 figure salaries? I'm not convinced.Certainly, there are other quant jobs out there. Somebody had to rate CDOs for example. Now, I'm not against CDOs, but their highly publicized blowups come in the heels of other financial crisis aided by other inventions by quants (e.g. Long Term Capital Management). The unintended consequences of these instruments came about because very few people actually grasped the full consequences and the risks of using these models. Can we as human beings handle further financial innovations in the future? If not, maybe quants are doing a disservice to the rest of the human race by operating outside their realm of intellectual capacity?I hope you don't mind me asking these questions - they're a bit poignant but they hold some significance for me. Thank you.
 
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ArthurDent
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Do quant strategies add value to the world?

November 16th, 2008, 1:16 am

QuoteOriginally posted by: dionysiusIf an investor buys and hold a security for a long time (a la Buffett), then he or she is helping the company expand.How? When a company sells its shares to the public in an IPO (or a secondary offering) it gets money for its operations. After that it hardly matters to the company who owns the stock. Once Google or Goldman Sachs went public and the founders cashed out, do they really care who holds its shares currently?So then where is buy and hold "helping the company expand"?"Buy and hold" is just another trading strategy, and it happens to work when growth rate is a positive number, there are no defaults (which you can remove by diversification), trading costs are high (which is no longer true) and your time horizon is measured in decades.
 
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dionysius
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Do quant strategies add value to the world?

November 16th, 2008, 2:40 am

I would think it adds value because you're generating demand for a security. If you buy and sell right away, you're not really generating demand - you're relying on other people's demand to take the security off your hands. Without any demand, the securities wouldn't sell. With low demand, the security would be underpriced, making it less desirable for sound businesses to expand. It's in the interests of a company to have a high stock price, since they can offer secondary offerings in the future as an example. I'm sure there are other reasons.Anyways, I'm not here to discuss the merits of buy and hold strategies, so even if I'm wrong about the above, I ask that you gloss over it. What I do want to know is whether quants add value to the rest of the world.
 
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actuaryalfred
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Do quant strategies add value to the world?

November 16th, 2008, 3:02 am

 
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ArthurDent
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Do quant strategies add value to the world?

November 16th, 2008, 3:59 am

QuoteOriginally posted by: dionysiusWhat I do want to know is whether quants add value to the rest of the world.Some points for you to ponder over:0.Define value.1.Quants create models for trading. Does trading add value to the rest of the world?2.Microsoft makes operating systems and other software. Does a programmer at MSFT add value to the world?3.Does maximising the money you make personally add value to the world? Directly? Indirectly? (Cue: Ayn Rand.)
 
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Marsden
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Do quant strategies add value to the world?

November 16th, 2008, 1:03 pm

"Do quant strategies add value to the world?"Quant strategies? Yes. The armies of people who implement and "develop" them? Not in an expenditure-efficient way.I don't expect that this will make me any friends here, but in my experience there are not very many "quants" who do much more than just parrot and replicate one or another version of the latest hot trend in quantitative finance. How many people are actually adept at specifying what the limits of some new model are, which to my thinking is about the most important thing that a practicing quant has to do? Really, had even just 10% of practicing quants been doing this effectively, would we be having anything like the financial meltdown we are now experiencing?If all a practitioner is doing is implementing a model, he could and should be replaced with a few lines of computer code.
 
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dionysius
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Do quant strategies add value to the world?

November 16th, 2008, 2:43 pm

Quote0.Define value.It improves other people's lives. I don't want to be overtly philosophical about this.Quote1.Quants create models for trading. Does trading add value to the rest of the world?Trading in general, yes. I do know some economics. But I have yet to be convinced trading done by quants add value. Quote2.Microsoft makes operating systems and other software. Does a programmer at MSFT add value to the world?Yes. Computers make our life easier. I'm using Windows right now.Quote3.Does maximising the money you make personally add value to the world? Directly? Indirectly? (Cue: Ayn Rand.)Doesn't matter. I personally wouldn't be happy if I didn't add value to the REST of the world.
 
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Anthis
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Do quant strategies add value to the world?

November 16th, 2008, 2:54 pm

QuoteQuote3.Does maximising the money you make personally add value to the world? Directly? Indirectly? (Cue: Ayn Rand.)Doesn't matter. I personally wouldn't be happy if I didn't add value to the REST of the world.Income_t=Consumption_t + Savings_tYour consumption is someone elses' revenues and your savings is someone elses' borrowings. Thus its no brainer.
Last edited by Anthis on November 15th, 2008, 11:00 pm, edited 1 time in total.
 
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ArthurDent
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Do quant strategies add value to the world?

November 16th, 2008, 4:20 pm

QuoteOriginally posted by: dionysiusI personally wouldn't be happy if I didn't add value to the REST of the world. Why don't you make a billion bucks as a quant trader and then give it all to charity? That what Warren Buffet and Bill Gates (and several robber barons before them) did. Will that meet the requirement of "adding value to the REST of the world?"Even if computers make our life easy, that doesn't automatically imply that the newest programmer at MSFT or GOOG is adding value. Otherwise the jump from "trading adds value" to "quant makes a contribution to trading hence adds value" would be automatic, wouldn't it? If your definition of adding value is "being a pioneer, an inventor, an innovator" (as it is for most people who do PhDs) then being the N-th quant at GS or the N-th programmer at MSFT will not really add value.It all boils down to: define more clearly what you consider as adding value.PS: Are you in the middle years of your PhD, with coursework completed but dissertation topic not yet finalized? That's when people get lost in such bouts of existentialism.
 
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Cuchulainn
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Do quant strategies add value to the world?

November 16th, 2008, 4:34 pm

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? QuoteWhat I do want to know is whether quants add value to the rest of the world. And the famiglia?
Last edited by Cuchulainn on November 15th, 2008, 11:00 pm, edited 1 time in total.
 
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ppauper
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Do quant strategies add value to the world?

November 16th, 2008, 5:32 pm

QuoteOriginally posted by: Cuchulainn'meaning-of-like-type' questionsmeaning of liFe ?
 
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Traden4Alpha
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Do quant strategies add value to the world?

November 16th, 2008, 5:39 pm

QuoteOriginally posted by: ppauperQuoteOriginally posted by: Cuchulainn'meaning-of-like-type' questionsmeaning of liFe ?Or the meaning of LiFe (Lithium Ferride)?But seriously, humans dislike nondeterministic systems and when they invest in such a system and the system's evolution runs counter to their expectations, they question themselves and the merits of the system.
 
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dionysius
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Do quant strategies add value to the world?

November 16th, 2008, 5:45 pm

QuoteOriginally posted by: Marsden"Do quant strategies add value to the world?"Quant strategies? Yes. Please elaborate.ArthurDent: How does a new programmer not add value? Without them, softwares wouldn't be built. Trading 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.I've indeed finished my coursework. The question came about because I started learning more about the industry practices, and the current crisis definitely helped raise those questions.To Cuchlainn: what is famiglia?Anyways, the sense I get is that people are resigned to the reality that quant strategies don't actually add value to the world. So rather than give examples of how quants add value, questions are being raised about the nature of "value" itself. If the definition of "value" is modified, then maybe quant strategies can generate "value". I have said that my definition of value is that doing a good job benefits the rest of human kind as a direct result. Is it really worth it to go into more specifics?
Last edited by dionysius on November 15th, 2008, 11:00 pm, edited 1 time in total.
 
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aiQUANT
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Do quant strategies add value to the world?

November 16th, 2008, 6:15 pm

 
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Cuchulainn
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Do quant strategies add value to the world?

November 16th, 2008, 6:29 pm

QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: ppauperQuoteOriginally posted by: Cuchulainn'meaning-of-like-type' questionsmeaning of liFe ?Or the meaning of LiFe (Lithium Ferride)?But seriously, humans dislike nondeterministic systems and when they invest in such a system and the system's evolution runs counter to their expectations, they question themselves and the merits of the system.Yes, but humans adapt; after the first crisis you kind of expect X; and when X doesn't come you start getting worried (X is an event related to anything.. and exp(X) cannot go on forever)@dio To Cuchlainn: what is famiglia?Italian for 'family'I blame Vico for all these 'cycles'; his ideas ruined James Joyce who could have become a great writer. see this about the Liffey: riverrun, past Eve and Adam's, from swerve of shore to bend of bay, brings us by a commodius vicus of recirculation back to Howth Castle and Environs. Translation into English: What goes around comes around
Last edited by Cuchulainn on November 15th, 2008, 11:00 pm, edited 1 time in total.
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