The Man Who Solved the Market

Quant investors had emerged as the dominant players in the finance business. As of early 2019, they represented close to a third of all stock-market trades, a share that had more than doubled since 2013.6

“There is no individual bet we make that we can explain by saying we think one stock is going to go up or another down,” a senior staffer says. “Every bet is a function of all the other bets, our risk profile, and what we expect to do in the near and distant future. It’s a big, complex optimization based on the premise that we predict the future we

The gains on each trade were never huge, and the fund only got it right a bit more than half the time, but that was more than enough. “We’re right 50.75 percent of the time . . . but we’re 100 percent right 50.75 percent of the time,” Mercer told a friend. “You can make billions that way.”

The fund, now managing $10 billion, had posted average returns of about 45 percent a year, after fees, since 1988, returns that outpaced those of Warren Buffett and every other investing star. (At that point, Buffett’s Berkshire Hathaway had gained 20 percent annually since he took over in 1965.)

Simons’s scientists were more confident about short-term signals, partly because more data was available to help confirm them. A one-day trading signal can incorporate data points for every trading day of the year, for instance, while a one-year signal depends on just one annual data point. Nonetheless, the researchers were pretty sure they could m

All models are wrong, but some are useful. George Box, statistician

“But he didn’t steal from us,” alluding to the alleged actions of Belopolsky and Volfbeyn.

Brown’s view reflected the sentiments of some at Renaissance who felt that while Kononenko ruffled feathers and could be unusually blunt, his behavior likely reflected the culture he had become accustomed to in Russia. Mercer said hardly anything, of course, but he seemed to agree with Brown and others at the table voting to ignore Kononenko’s infr

Brokerage and other restrictions place limits on how much a hedge fund can borrow through more traditional loans, but the options gave Medallion the ability to borrow significantly more than it otherwise was allowed to. Competitors generally had about seven dollars of financial instruments for each dollar of cash. By contrast, Medallion’s options s