With not much left to invest in and most things having been taken over by the US government, back in January two analysts from the quantitative group at ING Investment Management in New York combined research and modeling expertise to hatch a diabolical plan: they would hit every Manhattan subway stop in less than 24 hours.
Hedge fund analyst Matt Ferrisi and quant analyst Chris Solarz gathered notoriously faulty MTA schedule data, ran regression analysis, considered trillions of combinations and possibilities with sophisticated software, and ultimately plotted a course that would complete the 468 stops in 22 hours 45 minutes, and even disgorge them at Grand Central Station for a full day at the office. Result: Precisely 22 hours and 51 minutes later, the bleary-eyed duo climbed the platform and cruised onto Park Avenue, victors and new Guinness World Record holders.
Lesson, all you IROs wondering what in the name of socialism this has got to do with your stock’s trading? Well, 2009 is destined to be a good year for quantitative investors. Why? Quant models work best to manage risk in unpredictable markets. Tales of destruction notwithstanding, a number of high-profile quant investment shops compiled big returns in 2008, including Renaissance Technologies, up 80%. What’s changed in 2009? Rationality and market efficiency remain unsubstantiated rumors, the economic outlook is dismal, and central banks are all enthralled with the Wii of the banking world, “quantitative easing” (more on that some other time). These conditions represent the sort of environment where quants mapping the shortest route through a great maze of variables a la Ferrisi and Solarz might thrive.
So what to do? Kick your IR Cool Quotient up a notch by learning a little more about quant trading. Knowledge is power, you know. For instance, at this week’s link below, you can read about ING’s view (since we picked on their enterprising analysts today) of quantitative markets and they way that firm maps market sentiment, quality and value to construct a view of opportunity. We here at ModernIR use rational investment, speculation and risk-management as the tri-cord strand of great IR coolness.
Right now, with the exception of stronger than expected trading today (Mar 31), we’re not surprised by market activity and we expect money will shift from equities to other spread opportunities in April. As ING notes, however, markets always return to fundamentals at some point. The fewer government subway stops between flushing detritus and finding value, the quicker we’ll get there.
Margaret E. Wyrwas - Knight Capital Group, Inc. (Nasdaq: NITE)
Senior Managing Director, Corporate Communications & Investor Relations
Equity Analysis™ subscriber since March 2007
"In global markets driven by automation, changing market structure regulation and dynamic investment objectives, today's investor relations professionals require new data points in order to remain relevant and add value in their company's quest to reduce its cost of capital."
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