Glossary

Quantitative easing (QE)

Quantitative easing (QE) involves electronically expanding a central bank's balance sheet.

Quantitative investing – also known as systematic investing – is the broad term for a wide range of different investment strategies that employ sophisticated computer-based mathematical models to identify and carry out trades.

Common quant strategies include factor investing, which looks at characteristics of an asset such as the profitability of a company. To take a simple example, an investing algorithm might buy stocks that appear cheap on measures such as price/book value and sell stocks that look dear. This is a classic value investing approach that a human manager might follow. But the algorithm will take into account far more metrics than a human manager might, while ignoring other considerations that might sway a human – such as whether they think the firm’s management is good. 

Risk parity strategies allocate between different assets depending on how volatile they are and how much volatility the investor wants. Trend-following strategies (also known as managed futures or commodity trading advisers (CTAs)) look for trends in the price of assets and make decisions based on those. Statistical arbitrage is based on relationships that normally exist between the price of different securities. Event-driven strategies identify patterns around events such as earnings announcements or corporate actions. Systematic global macro decides whether to invest in countries, assets or sectors based on quant models that use economic data.

Proponents argue that quantitative investing helps remove biases and emotion from investment decisions, ensuring that they are based purely on data. While quant models are initially programmed by people, the role of humans in making individual investment decisions is greatly reduced. With some of the newer artificial intelligence-powered approaches, even the designers may not fully understand why a system chooses specific trades.

For more on QE, see Tim Bennett's video tutorial

Recommended

Margin call
Glossary

Margin call

When an investor borrows to bet on markets, they put down a deposit known as “margin”.
2 Apr 2021
Resource curse
Glossary

Resource curse

The term “resource curse” refers to the observation that countries with abundant natural resources also tend to be less economically developed than th…
14 Jan 2021
Balance of payments
Glossary

Balance of payments

The balance of payments refers to the accounts that sum up a country's financial position relative to other countries.
8 Jan 2021
Yield-curve control
Glossary

Yield-curve control

Yield-curve control is when a central bank aims to control long-term interest rates by pledging to buy (or sell) as many long-term bonds as needed to …
25 Dec 2020

Most Popular

China owns a lot more gold than it’s letting on – and here’s why
Gold

China owns a lot more gold than it’s letting on – and here’s why

In a world awash with money-printing, a currency backed by gold would have great credibility. And China – with designs on the yuan becoming the world’…
21 Apr 2021
“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
House prices in the UK are still surging – here’s why it’ll probably continue
Property

House prices in the UK are still surging – here’s why it’ll probably continue

The latest UK house price data shows no letup in the country’s booming property market, with the biggest yearly rise since 2014. And there’s no end in…
22 Apr 2021