Heads up for money managers: the quant revolution is coming
There is now a blueprint for traders seeking to hitch a high-octane ride on the global credit cycle
London — If the quant revolution disrupts corporate bonds one day, you might want to remember this name: Roni Israelov. The wiz at AQR Capital Management just sketched a blueprint for traders seeking to hitch a high-octane ride on the global credit cycle — powered by the very finance tools that have changed Wall Street’s game on stocks. This is technical stuff, for sure, but in a nutshell, Israelov’s recent paper draws on the fine art of factor investing to distill the ingredients that have served up returns in credit over the past two decades. The payoff from this data-mining: money managers can replicate exposure to the asset class via derivatives tracking government bonds and stocks, according to the principal at the $203bn firm. It’s a top-down approach compared with previous efforts that group obligations by characteristics such as momentum and value — and it’s a window into the budding quant quest to dig goldmines in the world of corporate debt. This putative portfolio stuffed...
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