Question for quant/algo people. I believe human traders must develop a view of the market, then seek out the best implementation strategy to express it. Do any machine strategies do this, or do they tend to operate/evaluate starting directly at the instrument/product level?
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You can do top down or bottom up in quant, although it’s more common to do bottom up.
For an example of top-down quant, AHL trade equity sectors using a technical strategy, then use a combination of technical/fundamental metrics to decide which companies to long/short to get exposure to the sector.
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Equity market neutral would typically always be bottom up. CTA is often bottom up but no reason it can’t be top down, since most of the risk is driven by directional beta exposure (global equities/rates/USD/energy etc)
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Would I be correct in assuming that a top-down implementation is a much more complicated and involved undertaking?
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I don’t think it’s any more or less complicated. In top down, you can easily figure out your gross portfolio exposures (eg how much equity beta, how much dv01 etc) and the hard part is selecting securities to give you that exposure. In bottom down, selecting securities is …
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