Hedge funds sometimes use mathematical techniques to "capture" the short-term volatility of stocks. This sort of strategy resembles market making. Market makers generate profits by providing liquidity to the market.
Hedge funds sometimes use mathematical techniques to "capture" the short-term volatility of stocks. This sort of strategy resembles market making. Market makers generate profits by providing liquidity to the market. This process occurs naturally because market makers offer a stock for sale at a higher price than they are willing to pay for it and because the more urgent buyers and sellers are willing to accept a liquidity premium.
Robert Fernholz discusses the dynamic strategy that mimics market making, which is sometimes referred to as "statistical arbitrage" (or "stat arb" in the patois of the Street).
This is an archived recording of a live webinar that took place on 30 January 2008.
Please note that text may be difficult to read in this recording. The presentation slides are available for download in the video player.