An Overview of Quantitative Research and Trading

September 22, 2003

Abstract

New York, NY, USA Boston, MA, USA September 22, 2003

Celent estimates that quantitative research techniques now control over US$4 trillion in assets, and that model-driven trading now comprises 34% of US equity volume by total shares traded.

The last ten years have seen an increasing number of investment management and brokerage firms using quantitative techniques to select and trade financial products. This increase is due to a variety of factors, including revenue opportunities, the availability of off-the-shelf technology, and the popularization of empirical investment analysis on Wall Street.

In a new report, " ," Celent analyzes the trend of investment managers and brokerage firms to use quantitative techniques to select and trade financial products.

The rise of model-driven trading is a steady undercurrent in today's equity market environment. Suggestions of this growth can be seen from ECN trading in NYSE-Listed securities, new quantitative subcategories for NYSE-reported program trades, and an increase in off-the-shelf technologies for model-driven trading. Celent estimates that 34% of all trading in US equities is now purely model-driven, including trades made intra-day or over a longer time horizon. Celent expects this number to increase slightly over the next few years before hitting a point of equilibrium near 45%.

The last few years have seen an explosion of interest in technologies that assist with quantitative trading. Databases, order management systems and order routing tools are the three areas covered in this report. Celent believes that many firms are considering or already have outsourced their development of databases and quantitative order management systems. Our projections of IT spending show the entire database and quantitative OMS market growing slightly over the next three years, with greater spending migrating towards vendors and away from in-house development.

"Quantitative research and trading is a popular trend, though one that is grounded in solid investment theory" comments Sang Lee, co-author of the report. Regardless of the rationale, Celent expects the growth of quantitative research and trading techniques to continue through the next three years.

The 30-page report contains 7 figures and 4 tables.

A is available online.

of Celent Communications' Institutional Securities & Investments research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.

        

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Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

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Michele Pace
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Tel: +1 212 345 1366

Europe (London)
Chris Williams
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Tel: +44 (0)782 448 3336

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Table of Contents

 

New York, NY, USA Boston, MA, USA September 22, 2003

Quantitative Research  and Trading

Return to report Abstract

 

EXECUTIVE SUMMARY 3
INTRODUCTION 4
THE GROWTH OF QUANTITATIVE ACTIVITY IN FINANCIAL MARKETS 5
QUANTITATIVE RESEARCH  11
  Screen 11
  Daily/Monthly Predictive Models 11
  Intraday Predictive Models 12
QUANTITATIVE TRADE EXECUTION 14
  Volume-Weighted Average Price (VWAP) 14
  Pairs 14
  Arbitrage 15
DATABASES, ORDER MANAGEMENT SYSTEMS AND ROUTING 16
REAL & IMAGINED DISASTERS IN MODEL-DRIVEN TRADING 22
  Black Monday 22
  LTCM 23
FUTURE TRENDS 25
OBJECTIVITY & METHODOLOGY 27

 

        

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