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Humbled at TradeTech 2009

Mar. 08, 2009 10:07 AM ET
Michael Ferrari profile picture
Michael Ferrari

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

This article was written by

Michael Ferrari profile picture
Michael Ferrari is a Senior Scientist and Director of Commodities at aWhere, where his research and technology transfer activities focus on improving their global agricultural/climate/life sciences data platform. He is also the founder and principal at Atlas Research Innovations, which provides applied research and bespoke services to clients in the private and public sector, government, and academia. Previously, he was the Director of Agricultural Commodity Research & Risk Management for The Coca-Cola Company, the Director of Informatics and a Principal Scientist at NASA for Computer Sciences Corporation, Vice President of Applied Technology and Commodities at WTI, and a Research Scientist and Commodity Trader at Mars. He spends much of his time building tools and models with sensors and data, creating algorithms, and directing commercial research activities towards the examination of the global food and climate complex from a systems perspective. Michael is a frequent speaker at scientific, commodity and data/technology conferences around the world, where his talks focus on the confluence of human-environmental-technology interaction and the broader relationship of these topics to societal issues including climate, food and energy security, and global change. Michael holds a PhD in Geophysical Fluid Dynamics and Environmental Biophysical Modeling from Rutgers; his doctoral work in numerical modeling was supported by the NASA Goddard Institute for Space Studies.

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