Man vs. Machine on Wall Street: How Computers Beat the Market

Asness thinks Nassim Taleb is right about the increasing frequency of Black Swan events. And quants still face severe threats from market volatility: according to a report from Morgan Stanley, quant funds betting against momentum stocks in Europe took a beating in early January that reminded many of the 2007 crisis, causing as much as a 10 percent overall loss. "In only a few days," the report said, a number of quants "experienced unprecedented losses in seemingly 'normal' market conditions." But Asness thinks the episode was overblown, and says AQR was unaffected by it. And he does not believe that quants, or other more traditional hedge funds, had any role in the catastrophic events of 2008. "The crash was about credit and real estate," he said. (That seems to be the conventional wisdom, at least as reflected by the report of the Financial Crisis Inquiry Commission.) "If you look at our history--even AQR's aggressive hedge funds--we've made money, and we have smoothed the path," he said.

They've also made themselves fabulously rich--beyond anything they could have imagined--and proved to themselves the wisdom of Kabiller's original vision. Asness thinks AQR has as much chance as anyone of predicting and protecting against the next Black Swan. Even so, he and his partners are occasionally given to intense periods of introspection, wondering whether the quantitative approach really still works. "I do have a recurring nightmare about being hacked to death by a pack of rabid black swans," he said. "What do you think that means? Seriously, anyone, quant or not, with a shred of intellectual honesty recognizes that there is some chance their historical success is just luck."

Still, he thinks AQR and the other quants have bounced back, from crisis after crisis in the markets, for one very important reason. "We had to first convince ourselves we were right," he said. And so they have.

Presented by

William D. Cohan, a columnist for BloombergView, is a contributing editor at Vanity Fair and the author, most recently, of The Price of Silence.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In