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Trading and Risk

03.24.13 | Comment?

Cathy O’Neil of Naked Capitalism, data scientist, writes on the move of quant shops away from high-speed trading and towards accepting inefficiency.

In quantitative trading, nobody really thinks that “markets are efficient.” That’s kind of ridiculous, since then what would be the point of trying to make money through trading? We essentially make money because they aren’t. But of course that’s not to say they are entirely inefficient. Some approaches to removing inefficiency, and some markets, are easier than others. There can be entire markets that are so old and well-combed-over that the inefficiencies (that people have thought of) have been more or less removed and so, to make money, you have to be more thoughtful. A better way to say this is that the inefficiencies that are left are smaller than the transaction costs that would be required to remove them.

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