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

by Gregory Zuckerman

“If I don’t have a reason for doing something, I leave things as they are and do nothing,”

Sifting through Straus’s data, Laufer discovered certain recurring trading sequences based on the day of the week. Monday’s price action often followed Friday’s, for example, while Tuesday saw reversions to earlier trends. Laufer also uncovered how the previous day’s trading often can predict the next day’s activity, something he termed the twenty-four-hour effect. The Medallion model began to buy late in the day on a Friday if a clear up-trend existed, for instance, and then sell early Monday, taking advantage of what they called the weekend effect.

“What you’re really modeling is human behavior,” explains Penavic, the researcher. “Humans are most predictable in times of high stress—they act instinctively and panic. Our entire premise was that human actors will react the way humans did in the past … we learned to take advantage.”