The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution

by Gregory Zuckerman

Frey proposed deconstructing the movements of various stocks by identifying the independent variables responsible for those moves. A surge in Exxon, for example, could be attributable to multiple factors, such as moves in oil prices, the value of the dollar, the momentum of the overall market, and more. A rise in Procter & Gamble might be most attributable to its healthy balance sheet and a growing demand for safe stocks, as investors soured on companies with lots of debt. If so, selling groups of stocks with robust balance sheets and buying those with heavy debt might be called for, if data showed the performance gap between the groups had moved beyond historic bounds. A handful of investors and academics were mulling factor investing around that same time, but Frey wondered if he could do a better job using computational statistics and other mathematical techniques to isolate the true factors moving shares.