A quant systematically applies an alpha-seeking investment strategy that was specified based on exhaustive research. What makes a quant a quant, in other words, almost always lies in how an investment strategy is conceived and implemented. It is rarely the case that quants are different from discretionary traders in what their strategies are actually doing, as illustrated by the earlier example of pairs trading and statistical arbitrage. There is almost never any attempt to eliminate human contributions to the investment process; after all, we are talking about quants, not robots. As previously mentioned, though quants apply a systematic approach to a wide variety of strategies, whether a fund designed to track the S&P 500 or to trade exotic options strategies, this book will remain focused on quants who pursue alpha, or returns that are independent of the direction of any market in the long run.

Besides conceiving and researching the core investment strategy, humans also design and build the software and systems used to automate the implementation of their ideas. But once the system "goes live," human judgment is generally limited in the day-to-day management of a portfolio. Still, the importance of human discretion in such a setup should not be understated. Good judgment is actually what separates the best quants from the mediocre. The kinds of issues listed in the stat arb example are just a small subset of the kinds of decisions that quants almost always ...

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