What is a quant fund?
A quant fund is an investment fund that utilizes quantitative techniques to invest in the financial markets.
This includes methods like statistical and mathematical analysis of securities, as well as computer models that automatically place buy and sell orders.
Quant funds, sometimes called quantitative funds, have been on the rise since the success of Renaissance Technologies, a highly successful quant fund founded by Jim Simons. Since then, many quant funds have faced criticism for engaging in speculative trades that are thought to have detrimental effects on the market economy.
Quant hedge funds are funds that make money using quantitative trading strategies, such as statistical arbitrage, high-frequency trading, and mathematical valuation models.
Some popular quant funds are Two Sigma and Rentech. Both funds have enjoyed unusually high returns compared to their peers.
Quantitative funds use mathematics and computer-based models to make investment and trading decisions. Unlike hedge funds led by human decision-makers, quant funds usually let their models decide when to buy and sell stocks.
They perform extensive backtesting to investigate which models are likely to be successful in the future, and rarely do they override the trading signals given by their models.