The Past and Future of Quantitative Asset Management

January 01, 2008
  • Contributors:

    Cliff Asness
  • Topic:

    Asset Allocation, Risk Management

CFA Proceedings Quarterly

The defining element in quant management is diversification. Good quants play a statistical game. They do something that works based on an average tendency.

The advantage of quant management is that the manager does not have to make a big bet on any one position. Its disadvantage is that quant managers tend to know far less about any given situation than qualitative managers do.

Value and momentum are not the only means of organizing a quant portfolio. But the basic premise of juxtaposing two such good but uncorrelated long/short portfolios is generally quite applicable. They work for a variety of investment decisions, and their behavior is observable by using simple measures.

Data included in this article suggest that implementing these strategies globally yields a far higher Sharpe ratio than on an individual country basis. While the effectiveness of the two strategies varies, systematic failures of the combination are not found.

It is important to remember that sound portfolio construction requires diversification not just by dollars but by volatility; implementing this approach generally requires leverage.

Based on the data in this paper, quantitative equity represents a strategy that has worked for more than 80 years and now looks even more attractive than usual. Its benefits have not been arbitraged away, although quant strategies are vulnerable whenever many managers are doing the same thing at the same time and financing shorter than their investing horizons.



  • AQR Capital Management, LLC, (“AQR”) provide links to third-party websites only as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked sites. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which AQR.com has no control. In no event will AQR be responsible for any information or content within the linked sites or your use of the linked sites.

  • The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees.

    This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.