Quantitative managers are rushing to build new models in order to find new ways of extracting alpha from their floundering strategies
Managers of statistical arbitrage strategies that target U.S. equities are finding themselves in the unenviable position of waging an arms race of sorts, frantically building new quantitative models and approaches to eke out alpha in an environment where overcrowding has severely curtailed return potential.
The race to develop models to gain a strategic edge is nothing new in the history of modern stat arb. But the pace has become quite fevered in recent years as returns have come under increasing pressure due to a number of structural changes that have conspired to create systemic woes for even veteran arbitrageurs. The proverbial 'edge' that stat arb players seek out is becoming harder to find.
What's changed over the last few years? Factors include a sharp drop off in barriers...