Arbitrageurs tap new sources
of volatility to stage a comeback
Rumors of the demise of statistical arb have been greatly
exaggerated. In fact, most of the strategy's managers have
defied conventional wisdom - and the historical odds - by
mounting a comeback of sorts in 2006, smack in the midst of a
low-volatility market environment that would traditionally be
unfavorable for the strategy.
Stat-arb giants like DE Shaw, SAC Capital and Highbridge
Capital Management have upped exposure to the sector in
absolute dollar terms, already adding to 2006 returns.
Highbridge was up 7.6% in Class A shares through April, besting
last year's showing of 5.5%. And both DE Shaw and SAC are both
heading into May on strong single-digit stat-arb returns,
poised to top last year's performance.
Mind you, all of this is a surprise to some investors
looking solely at the traditional predictor of performance. A
decline in U.S....