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

by Gregory Zuckerman

The Morgan Stanley traders became some of the first to embrace the strategy of statistical arbitrage, or stat arb. This generally means making lots of concurrent trades, most of which aren’t correlated to the overall market but are aimed at taking advantage of statistical anomalies or other market behavior. The team’s software ranked stocks by their gains or losses over the previous weeks, for example. APT would then sell short, or bet against, the top 10 percent of the winners within an industry while buying the bottom 10 percent of the losers on the expectation that these trading patterns would revert. It didn’t always happen, of course, but when implemented enough times, the strategy resulted in annual profits of 20 percent,