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Real arbitrage = risk free profit, i.e.1. No brainer cross market arb.2. Physical market arbitrage, storage, delivery, locational.3. Selling a derivative and being able to "perfectly" replicate it, and making money off the nice premium.4. Mispriced options that are not at the money in highly liquid equity/FX markets.5. More.Statistical arbitrage?1. Illusion of arbitrage.2. Creating a stupid cointegration/pairs trading/multi-asset trading strategy that produces fantastic PnLs and Sharpe Ratios, making your bosses happy. But in reality knowing that resimulation of the assets in a robust statistical way via copulas or covariance matrixes (if normal) or whatever you want, would not produce the PnLs that you got from that strategy.Great because? You can make money off the suck-er investors, who fancy mathy shit and think a bunch of Phd's are going to make their money grow when little do they know that investing in this kinda fund can have a negative payoff and you "pay" investor fees to a fund whose strategies are purely martingale.

Whats wrong dude? Got a pink slip and your fancy "perfect replication" math is not in demand anymore?Go teach some efficient market economy in Chicago

haha no. I am directly involved with all of the points mentioned. And no pink slip for me mr. tool, luckily I really understand the underlying and not only derivatives .

QuoteOriginally posted by: harrisonthaha no. I am directly involved with all of the points mentioned. And no pink slip for me mr. tool, luckily I really understand the underlying and not only derivatives .And lucky you! Got any TARP funds recently mr smart @ss?

I'm a commodities guy. Equities and bank-client-instruments can kiss my hairy Papua new guinean ass.

aka Mexican gulf eco-friendly SWINGs? So why do you attack other people's business?

think energy. Why do I attack other peoples business? Because I see some smallish hedge funds around me, whose strategy is stat arb in the way I mentioned or technicals (MACD, RSI and indicators based on that kinda shit, i.e. trend followers). I just am too nice to tell them that their funds are shit shows with clearly inconsistent returns. AND THEY GET INVESTORS, ITS JUST DISHONEST PRACTICE.You would think that you would be more sophisticated if you call yourself a "hedge fund".

whats the problem with that? Money will move from stupid people to smart people, that is how market works. HF are entities for "qualified sophisticated investors", they don't screw orphans and widows.>> I just am too nice to tell them that their funds are shit shows with clearly inconsistent returns.It's very kind of you but I think current administration will regulate the industry to hell, so everybody with AUM < 1 billion will die soon anyway.

anyway my point is that Stat arb is pseudo science, in guise of little understood mathematical sophistication.

QuoteOriginally posted by: tu160whats the problem with that? Money will move from stupid people to smart people, that is how market works. HF are entities for "qualified sophisticated investors", they don't screw orphans and widows.Sure they do. Lots of those qualified investors are pension funds.

QuoteOriginally posted by: tu160whats the problem with that? Money will move from stupid people to smart people, that is how market works. Subprime ninja mortgages come to mind unavoidably. Especially those with negative amortization...

QuoteOriginally posted by: photoguyQuoteOriginally posted by: tu160whats the problem with that? Money will move from stupid people to smart people, that is how market works. HF are entities for "qualified sophisticated investors", they don't screw orphans and widows.Sure they do. Lots of those qualified investors are pension funds.Pension funds are also heavily invested in S&P 500. Does it mean S&P 500 companies do it also if stock goes down?

QuoteOriginally posted by: AnthisQuoteOriginally posted by: tu160whats the problem with that? Money will move from stupid people to smart people, that is how market works. Subprime ninja mortgages come to mind unavoidably. Especially those with negative amortization...I always knew state planning committee is the best way to promote fair competition Not to mention that linear programming is superior to Gaussian copula the same order of magnitude Gaussian copula is superior to stupid stat arb math

Gauss is outdated. Rocco's copulation is the way to go...

QuoteOriginally posted by: tu160QuoteOriginally posted by: photoguyQuoteOriginally posted by: tu160whats the problem with that? Money will move from stupid people to smart people, that is how market works. HF are entities for "qualified sophisticated investors", they don't screw orphans and widows.Sure they do. Lots of those qualified investors are pension funds.Pension funds are also heavily invested in S&P 500. Does it mean S&P 500 companies do it also if stock goes down?Now you are just completely evading the point. You said that it doesn't matter if hedge funds are dishonest, because they only market themselves to qualified investors (defined by the SEC to be institutional investors and rich people). Such investors are (erroneously) assumed to be sophisticated enough to sniff out an such dishonesty on their own. You mistakenly stated that we shouldn't worry about this, implying that any victims of such dishonest practices are not deserving of sympathy. I pointed out the error.Changing the subject to losses associated with the willful assumption of market risk is just an attempt to confuse the issue.