Just back from the TradeTech 2009 conference in New York this week. Here's a quick recap:
- The mood at the conference is very different from other technical trading events that I have attended in past years, for obvious reasons. There was a noticeable humbling of the 'masters of the universe' attitude that has in the past been so pervasive at these types of events. Many traders I talked to could afford to be away from their screen for the whole day, because 'not much is going on'.
- Despite the point made above, there is still a lot of self-denial in the quant community. Of course there are numerous reasons for decreased trading performance, and quants are not solely to blame, but they surely had a hand in the change in fortunes.
- I found it interesting that one speaker was relentless in saying that it wasn't the fault of the quants. According to this speaker whose name escapes me right now, 'we all went to the same business schools and we all worked at the same desks, and we all built our models using the same methodology, and if we (not me, them) didn't see this coming, nobody could have'.
I agree with the first part of his argument, but I actually think that this is precisely where the problem lies. The fact that they all act / talk / think / dress the same way is the root of the current predicament. If everyone focuses on the same variables, first of all, the opportunity to capture alpha is significantly reduced. Second, when an unexpected event or series of events occurs, their models become useless (ie, models not trained on a similar set of circumstances).
He argued that they back-tested their models 50 years - the depression was more then 50 years ago. As I have argued in other columns before, monoculture doesn't work. This holds true in agriculture, ecology, and also markets. A lot of people applauded extra hard when this guy finished his talk. I just stood up and left the room.
- Professor David Leinweber of Berkeley provided one of the better talks that acknowledged that quants and their models were wrong, and provided a more optimistic look at how technology can help to dig out of the current market crisis. I can't do his talk justice, so visit the Center for Innovative Financial Technology at Berkeley for a better overview.
- I was looking forward to hear the keynote by Larry Summers, who is President Obama's Director for the National Economic Council. A late schedule change replaced Summers with William Donaldson, the former SEC chair. This was a disappointment. Instead of hearing what Summers would do, we got a very long, one hour overview of what was done in the past.
- Finally, as a geek, I was happy to stay for day 2 to see Ray Kurzweil's lecture, delivered remotely. This talk could have gone on for another hour, and stressed the role of technology, not only in markets but in all sectors of the economy, as the engine to drive growth globally.
- Finally, thanks to SeekingAlpha for providing conference access, gratis.