\magnification=1200
\baselineskip=20pt
\nopagenumbers
\font\big=cmr12 scaled \magstep2

\centerline{\bf STANFORD UNIVERSITY}
\centerline{\bf DEPARTMENT OF STATISTICS}
\centerline{\big DEPARTMENTAL SEMINAR}
\bigskip

\baselineskip=12pt
\centerline{4:15 p.m., Tuesday, January 06, 2004}
\centerline{Sequoia Hall Room 200}
\centerline{(Cookies at 3:45 in 1st Floor Lounge)}

\bigskip
\baselineskip=15pt
\centerline{\sl Dirk Ormoneit}
\centerline{\sl Marshall Wace Asset Management}
\bigskip
\centerline{\bf Statistical Arbitrage}
\bigskip

Abstract:

Some hedge funds offer consistent out-performance relative to standard
benchmarks which is difficult to explain using either risk-premia, the
accumulation of tail-event risks, or selection bias. Such systematic
out-performance is theoretically possible only provided that financial
markets are (and remain) substantially less efficient than standard
economic models suggest. One academic explanation is provided by
behavioral finance, which postulates that even small deviations from
market "perfection" may be sufficient to generate substantial price
"disturbances". I give a brief summary of some of these models and
discuss trading opportunities which theoretically result in a behavioral
economy. In the second part of the talk, I test these "naive" strategies
on real market data to illustrate some of the emerging practical 
and mathematical problems. 

Finally, with a view to students who consider hedge funds as a possible
career path, I attempt to give some advice about the work in this
line of business.

\bye