Get ready for stat arb redux

Thu Jun 1, 2006

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....

ISSN: 2151-1845 / CDC10004H

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