Stat Arb
When i flip through job postings for trader positions the single most common strategy being sought after is high frequency stat arb traders. I was introduced to the strategy in more depth this summer but I am no means an expert on it.
The underlying investment thesis appears to be that 2 securities have a historical relationship over a given timeframe and they tend to revert to the mean. This strategy seems to have the same underlying principles as what LTCM used.
I thought margins in this area were already razor thin as many hedge funds already arb the market to death making these inefficiencies disappear however this is by far the most commonly sought after equity trading position.
If anyone has any further information on it I would be interested in hearing more.






funny fact about stat
funny fact about stat arb:
only so many stocks have characteristics that make them suit for stat arb candidates, so many hedge funds use them. if one of them blows up and liquidate, the other hedge funds that own these stocks are screwed too(relationship further away from historical norm). so one of the risk factors when picking stocks to use for stat arb is "the risk that other hedge funds are using the same pair". a little game theory.
which is what occured pretty
which is what occured pretty badly last august. Andrew lo @ MIT wrote a paper about it, need to take some time and read it. Hes produced some good stuff... one of the few academics that believes in technical analysis.
But yeah i agree with what you said. We traded some funky pairs this summer.
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.