Traditional investment approaches often struggle in such environments, primarily due to emotional biases such as fear and greed. Quantitative-based investment strategies offer a promising solution that can deliver consistent returns even in times of high uncertainty. The core of quantitative-based investing is the use of data and technology to make systematic, rules-based decisions. Quantitative strategies focus on identifying hidden patterns and trends in large data sets, rather than relying on human judgment or intuition.
These strategies can use algorithms to analyze vast amounts of information, including years of historical data, real-time market data, and even non-traditional sources such as social media sentiment. By processing this data, quantitative models create a comprehensive picture of the market and help identify potential opportunities that are difficult to detect with the naked eye.
One of the main advantages of quantitative strategies is their objectivity. Unlike human investors, who can be influenced by emotions and short-term market noise, quantitative strategies follow a disciplined process based on predefined rules. This allows you to eliminate distractions, free yourself from emotional biases like fear and greed, and make decisions based on data and logic. Quantitative strategies have the ability to adapt to changing market conditions. Traditional investment strategies often rely on human decision-making, which can be delayed by analysis, bias, and hesitation, and can therefore be slow to react to sudden changes in the market.
Quantitative strategies, on the other hand, can process information in real time, allowing you to quickly adjust your portfolio in response to volatility. Additionally, quantitative strategies are rigorously backtested. This means that before being applied to the real market, it is tested against historical data to ensure that it performs effectively under different market conditions. This continuous backtesting gives quantitative models a deep understanding of how markets behave in both stable and volatile environments.
Quantitative-based investment strategies are popular in developed markets such as the US, where more than 35% of equities are managed by quants, but adoption has been slower in emerging markets such as India. This is largely due to the lack of availability of high-quality data, which has made it difficult for quantitative models to be effective. However, things are changing. As corporate governance improves and Indian markets become more liquid and deep, high quality data is becoming increasingly available. This has paved the way for quantitative strategies to gain traction in India. Edgequant-based investment strategies offer several important advantages during times of market volatility. Reduced human bias: Quantitative models rely on algorithms and data, which eliminates emotional and psychological factors. Poor decision making can occur during market turbulence.
Consistent decision-making: Quantitative strategies follow rigorous, repeatable processes to ensure decisions are made based on hard data rather than intuition.
Adaptability: These models can quickly respond to market changes and adjust portfolios in real time without hesitation or delay.
Quants are the future of investing, but we have only just scratched the surface in India. Quantitative strategies help investors achieve superior risk-adjusted returns by relying on data, technology, and systematic processes.
(Author Vivek Sharma is a Smallcase Manager and Director of Research at Estee. Views are own)
