(Bloomberg View) -- To Matthew Rothman, head of global quantitative equity research at Credit Suisse, we have entered the era of Quant 3.0 -- the third developmental wave of quantitative investing in which big data and advanced computing power allows information processing at levels that are exponentially greater than ever.
SoundCloud: Matthew Rothman Talks 'Quant Land' and Springsteen by Bloomberg View
As Rothman sees it, the world has become fully digitalized; data sets, storage and computing power are all plummeting in price; and the abilities of artificial intelligence are reaching levels barely imagined before. Although this is having a revolutionary impact on investing and trading, it comes with risks: Quants must understand where and how their models have failed in the past and will fail again in the future.
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Rothman, who also is a senior lecturer in finance at the Massachusetts Institute of Technology's Sloan School of Management, was hired a few years before the financial crisis to be global head of quantitative research at Lehman Brothers. In the midst of the quant crash in 2007, he published “Turbulent Times in Quant Land,” a research note explaining the meltdown. It became the most widely distributed research note in Lehman's history.
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Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net.
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