Summary: An objective and accurate definition of quantitative investment is the premise for analyzing it. First, quantitative and active investment are not opposites and do not employ fundamentally different investment logic. Second, quantitative investment is not synonymous with hedging, nor is it a guaranteed investment approach regardless of market conditions. Finally, quantitative investment is not solely about high-frequency trading, nor is it entirely a “black box” strategy. Essentially, it is a science, the inevitable outcome of the evolution of the financial sector, embodying investment philosophy, financial theory, and computing as its three core elements.
The portion of an investment portfolio that exceeds the risk-free rate of return can be decomposed into a three-tier pyramid: market β, Smart β, and α. True α should be the prized goal for a quantitative team, but it is also the most difficult to achieve. The recent “quant quake” stems from the high convergence in αstrategies, mismatched risk, and liquidity crises caused by excess leverage. Regulation related to α focuses on whether the methods of earning returns are fair and just, while regulation related to β focuses on whether it controls market volatility. It is essential to explore the creation of an efficient and low-cost capital market regulatory model through legal and market-based means.
