Statistical Arbitrage

(redirected from Stat arb)
Also found in: Wikipedia.

Statistical Arbitrage

In the context of hedge funds, a style of management that employs complex statistical models that try to capture small abnormalities in a security's intraday return.

Arbitrage

An investment practice that attempts to profit from inefficiencies in price by making transactions that offset each other. For example, one may buy a security at a low price and, within a few seconds, re-sell it to a willing buyer at a higher price. Arbitrageurs can keep prices relatively stable as markets try to resist their attempts at price exploitation. Arbitrageurs often use computer programs because their transactions can be complex and occur in rapid succession.
Mentioned in ?
References in periodicals archive ?
He built and managed the original trading desk at the multi-billion dollar hedge fund Millennium Partners in NY, and managed/traded one of the largest Stat Arb portfolios there for 7 years.
He says that "Trading, clearing and reporting mandates need to be in place so that market and trade data can be generated sufficiently and available publicly to make stat arb trading accessible to most PTGs.
The report also addresses the multi-dimensional client; learning from the way prime brokers cater to statistical arbitrage hedge funds and other high-volume, model-driven strategies, notoriously sensitive to costs and speed, indicative of the sophistication being brought to the changing brokerage business model (TABB estimates that for stat arb funds with cost-plus commission deals, net rebates account for 80% of the "commission" revenue); challenges in capturing client-level execution and research costs; the profitability matrix; and the manual process for client analytics versus a universal client analytics platform.
C) Stat Arb Sell-Off: Selling pressure on hedge funds and bank proprietary trading desks to de-leverage and raise cash is widely believed to be the catalyst for the downward spiral in the equity markets during the first 2 weeks of August.