Where have all the Stat Arb Profits Gone?
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Date: 01-28-2008
Start Time:
6:00pm
End Time: 7:30pm
Speaker: Andrew J. Sterge, AJ Sterge Division of Magnetar Capital, LLC.
Location: 412 Schapiro CEPSR, Davis Auditorium
ABSTRACT
Profitable statistical arbitrage depends to a certain extent on frictions in the price discovery process. The advent of decimal pricing for US stocks eliminated a prime source of frictions in the trading process. In this presentation I suggest that decimal pricing not only reduced frictions but also had a dramatic effect on the stochastic behavior of cross-sectional stock prices.
BIO
Andrew
J. Sterge is President of the AJ Sterge Division of Magnetar Capital,
LLC. In this capacity Mr. Sterge manages Magnetar’s reinsurance
investments and quantitative trading strategies. Additionally, Mr.
Sterge serves on the Board of Directors of Pulsar Re, Ltd., including
on the Underwriting Committee of the Board. Mr. Sterge is
Portfolio Manager for the Magnetar Risk Linked Fund, which invests its
assets into Pulsar Re.
In 2004 Mr. Sterge founded AJ Sterge Investment Strategies after 15
years at the Cooper Neff Group, the last four of which as the firm’s
Chairman and Chief Executive Officer. AJ Sterge Investment
Strategies pioneered investment strategies in reinsurance and various
segments of the equity and fixed income markets. AJ Sterge
Investment Strategies was acquired by Magnetar in April 2006.
Mr. Sterge joined Cooper Neff & Associates in 1989 as Director of
Options Research. In this position, Mr. Sterge developed options
pricing models which captured the effects of fat-tailed and skewed
distributions, as well as investors’ relative risk aversion for the
downside versus upside insurance aspect of options. Mr. Sterge
was promoted to Partner in 1993. Prior to joining Cooper Neff,
Mr. Sterge was employed by CoreStates Financial Corporation where he
was Assistant Vice President trading interest rate options from
September 1986 to November 1989.
In 1991, Mr. Sterge founded a new variety of short term equity trading
based on models of stock market microstructure, or how stocks’ bids and
offers evolve over time and in response to order flow and other
information. Called Active Portfolio Strategies, this business
flourished following the acquisition of Cooper Neff by Banque Nationale
de Paris (now BNP Paribas) in 1995. Effectively, an internal
hedge fund strategy, Active Portfolio Strategies at times managed well
over $20 billion in global equity positions for BNP Paribas. Mr.
Sterge’s groundbreaking strategy was profiled in a December 1997 front
page Wall Street Journal article titled “Trading by the Numbers.”
Mr. Sterge’s strategy remains the centerpiece of BNP Paribas’
proprietary equity trading.
In May 2000, Mr. Sterge created the CooperNeff Risk-Linked Assets Fund,
one of the first hedge funds dedicated to exploiting inefficiencies in
the reinsurance markets.
Mr. Sterge is a 1981 graduate of Wake Forest University where he
received his Bachelor of Science degree in Mathematics. He was
awarded the Kenneth Tyson Raynor Math scholarship in 1980 as well as
the John Y. Phillips Prize in 1981, given to the senior who most excels
in the study of mathematics. Mr. Sterge received his Ph.D. degree in
Mathematics from Cornell University in 1985. His doctoral thesis
built a mathematical model of coalition formation in a voting
context. As an application, Mr. Sterge measured the relative
importance of voters in the United States Federal Legislature. In
addition to his academic credentials, Mr. Sterge published an article
for the May/June 1989 issue of the Financial Analysts Journal entitled
“On the Distribution of Financial Futures Price Changes”.