Quantitative Portfolio Management

Afterword: Economic and Social Aspects of Quant Trading

Describe all methods of making noise. Which one is the most efficient?

Peter Kapitza¹

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1. 1   From Kapitza's collection of physics problems for the first (1948) class of Moscow Institute of Physics and Technology (MIPT), the author's alma mater. It was estimated that over 40% of science publications produced by PhysTech alumni come from affiliations in the US alone, reflecting a brain drain from Russia to the West—or perhaps the publish or perish environment in the US academia. The Unites States has traditionally benefited intellectually from upheaval in Europe and other regions and became home for highly productive scientists like Enrico Fermi from Italy, Albert Einstein from Germany, George Gamow from Russia, or the Hungarian “Martians” including John von Neumann, Eugene Wigner, Edward Teller, and others. What is seen more recently, and the author is part of it, is the new, occupational brain drain from science and engineering to finance.

After answering, more or less, the question of how, one may want to ask why? Why do quant analysts and portfolio managers do what they do? Serving hedge fund investors and paying their own bills, mortgages and alimonies aside, what is the purpose of quantitative trading of securities in a bigger social picture?

The main purpose of stock markets in a capitalist economy is to provide an information framework and liquidity (primary and secondary) to investors. The idea is ...