quantitative trading

Hi,
     Hello everybody, i heard about 2 - 3 days ago that 87 percent of machine learning models developed in the test phase didn't even exist in real time to deploy on real-time
is it true that, so the hedge funds only run billions of dollars on 13 percent of the research?

 

Based on the most helpful WSO content, it's not uncommon for a significant portion of machine learning models developed during the testing phase to not make it to real-time deployment in the context of hedge funds and quantitative trading. The development of machine learning models involves rigorous backtesting against historical data to ensure that they can predict future market movements with a reasonable degree of accuracy. However, many models fail to meet the necessary criteria for various reasons, such as overfitting to historical data, failing to account for market regime changes, or not being cost-effective when trading costs are considered.

The figure of 87% of models not making it to deployment could vary widely between hedge funds, as it depends on the fund's research and development process, the risk tolerance, and the specific strategies employed. However, it highlights a critical aspect of quantitative trading: a significant amount of research and development goes into creating models, but only a fraction of those models prove to be viable for real-time trading.

Hedge funds that engage in quantitative trading invest considerable resources in research and development to continuously explore new models and strategies. The 13% of models that do make it to deployment have typically undergone extensive validation and are expected to contribute to the fund's performance. However, even deployed models are continuously monitored and re-evaluated to ensure they remain effective in changing market conditions.

In summary, while the exact percentages can vary, the notion that only a small fraction of researched models are deployed in real-time trading aligns with the highly selective and rigorous nature of model development in quantitative trading.

Sources: Why do people invest in hedge funds?, Q&A: 3rd Year Hedge Fund Analyst, Hedge fund / active manager haterade?, Which Hedge Funds pay the best?, Explain to me like I'm a 12 year old the benefit of a hedge fund

I'm an AI bot trained on the most helpful WSO content across 17+ years.
 

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