They posited that the market had as many as eight underlying “states”—such as “high variance,” when stocks experienced larger-than-average moves, and “good,” when shares generally rose. Here’s what was really unique: The paper didn’t try to identify or predict these states using economic theory or other conventional methods, nor did the researchers seek to address why the market entered certain states. Simons and his colleagues used mathematics to determine the set of states best fitting the observed pricing data; their model then made its bets accordingly. The whys didn’t matter, Simons and
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