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AUGUST AMBUSH
How Market Turmoil Waylaid the 'Quants'
Morgan Stanley Star Is Among Those Battered;
No Time for Music Now
By SCOTT PATTERSON and ANITA RAGHAVAN
September 7, 2007; Page A1
Peter Muller, a 43-year-old trader at Morgan Stanley, is used to markets behaving more or less as he expects. But in late July, some unusual patterns perplexed him. Certain investing strategies that historically had posted steady gains started faltering for no evident reason.
Soon, the unusual trading spread from U.S. to Japanese and European markets as well. Mr. Muller picked up rumors that one or more unknown investors were buying and selling giant positions similar to the ones he held, according to someone familiar with the matter. The next two weeks proved one of the biggest convulsions ever faced by a breed of market players that includes Mr. Muller: quantitative investors, known as "quants."
These traders use complex mathematical models to invest in markets around the globe. Their computers track a wide range of data and variables, such as how cyclical stocks do when a particular currency rises or falls. Formulas programmed into their computers spit out prices at which stocks or other instruments are to be bought and sold. In fact, the computers themselves often do the trading.
Quant strategies have been around for decades, but in recent years they have really come into their own, thanks in part to technology that has lowered the costs of their trading-intensive methods. Whereas investors like Warren Buffett and Peter Lynch defined an era of common-sense "value" investing in the 1980s -- and swashbuckling hedge funds betting on everything from metals to the British pound typified the 1990s -- quants have scaled the heights of the investing world in the past decade.
Further reading and video snippet..
http://online.wsj.com/article/SB118912592144720147.html?mod=googlenews_wsj
How Market Turmoil Waylaid the 'Quants'
Morgan Stanley Star Is Among Those Battered;
No Time for Music Now
By SCOTT PATTERSON and ANITA RAGHAVAN
September 7, 2007; Page A1
Peter Muller, a 43-year-old trader at Morgan Stanley, is used to markets behaving more or less as he expects. But in late July, some unusual patterns perplexed him. Certain investing strategies that historically had posted steady gains started faltering for no evident reason.
Soon, the unusual trading spread from U.S. to Japanese and European markets as well. Mr. Muller picked up rumors that one or more unknown investors were buying and selling giant positions similar to the ones he held, according to someone familiar with the matter. The next two weeks proved one of the biggest convulsions ever faced by a breed of market players that includes Mr. Muller: quantitative investors, known as "quants."
These traders use complex mathematical models to invest in markets around the globe. Their computers track a wide range of data and variables, such as how cyclical stocks do when a particular currency rises or falls. Formulas programmed into their computers spit out prices at which stocks or other instruments are to be bought and sold. In fact, the computers themselves often do the trading.
Quant strategies have been around for decades, but in recent years they have really come into their own, thanks in part to technology that has lowered the costs of their trading-intensive methods. Whereas investors like Warren Buffett and Peter Lynch defined an era of common-sense "value" investing in the 1980s -- and swashbuckling hedge funds betting on everything from metals to the British pound typified the 1990s -- quants have scaled the heights of the investing world in the past decade.
Further reading and video snippet..
http://online.wsj.com/article/SB118912592144720147.html?mod=googlenews_wsj
