A Dynamic Future for Active Quant Investing

Abstract

Li and Sullivan believe that active quantitative portfolio management is on the verge of moving toward a more flexible approach capable of capturing dynamics in risk and return expectations across an array of asset classes. In widespread use today, the static quant-driven approach to active management is ill-equipped to deal with market environments that diverge substantially from typical conditions. The authors discuss what changes are needed at this important juncture for the active quant community to maintain relevance and improve the odds of long-term investment success. Active quants must broaden their focus beyond typical systematic bottom-up quantitative inputs to emphasize top-down qualitative evidence. Such a judgment- based, top-down (macro-driven) approach offers the flexibility necessary to achieve investment success in complex, dynamic capital markets.

TOPICS: Portfolio construction, statistical methods, big data/machine learning