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No, they didn't. They helped, but there is no way quant shops caused this sort of supply/demand imbalance for months. There is an inherent problem with a lot o
by steveplace 18y ago
No, they didn't. They helped, but there is no way quant shops caused this sort of supply/demand imbalance for months.
There is an inherent problem with a lot of financial modeling in that it assumes normal distributions (technically lognormal), so a lot of the models are mean-reverting. But financial markets are anything but statistically normal.
Stop blaming short sellers, the uptick rule, hedge funds etc. If noone wants to buy something, the price will go down. That's it.
- flashgordon 18y agomate that is not entirely true... "There investment bankers from the largest institutions pleaded successfully with Securities and Exchange Commission (SEC) officials during a short meeting in 2004 to lift a rule specifying debt limits and capital reserves needed for a rainy day." To me it seems like a lot of the models that the quants came up with were essentially a way to justify the above line of reasoning and to show that dependence on mortgage backed securities was sustainable (when in reality it was a path to a meltdown).. Ofcourse that doesnt mean the quants are to be blamed, when the directive had come from elsewhere...
- steveplace 18y agoYes, the leverage the banks asked for was a bad idea. Coincidentally, 4/5 of those banks either don't exist or don't do i-banking. But quants along with other strats (macro, long/short, etc) all had bad risk management models. You can't blame only program trading when there was so much human error. Also: quants (meaning algorithmic trading) did not show how MBS were good. That was human error; Moody's and S&P ratings, for example.