On August 12, in a post titled, “The Subprime Meltdown Hits Quant Hedge Funds,” DeLong summed up the quant attitude:
“Our strategy is fine. We were just hit by a sixteen-standard-deviation event.” “Then it didn’t happen: the universe isn’t old enough for even one sixteen-standard-deviation event to have ever happened.”
Tails are fat.
From an article in the Financial Times, “Goldman pays the price of being big“:
“We were seeing things that were 25-standard deviation moves, several days in a row,” said David Viniar, Goldman’s chief financial officer. “There have been issues in some of the other quantitative spaces. But nothing like what we saw last week.”
And investors trust these guys with their money….