The Elasticity of Quantitative Investment

2023/03/25 by Carter Davis, Davis, Carter
Economics, Econometrics and Finance · #Economic theories and models #FOS: Economics and business #Financial Markets and Investment Strategies #Mathematical Finance (q-fin.MF) #Monetary Policy and Economic Impact #Portfolio Management (q-fin.PM) #Risk Management (q-fin.RM) #Statistical Finance (q-fin.ST)

paper · pdf · doi:10.48550/arxiv.2303.14533

openalex publication_date 2023/03/25 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

What is the demand elasticity of statistical arbitrageurs that invest according to the advice of modern cross-sectional asset pricing models? Thirteen models from the literature exhibit strikingly inelastic demand, in contrast to classical models that rely on statistical arbitrageurs to create elastic market demand for assets. This inelasticity arises from the difficulty of trading against price changes. A quantitative equilibrium model shows that aggregate demand remains inelastic even with these statistical arbitrageurs in the market.

Related

• An Intertemporal Capital Asset Pricing Model
• A Demand System Approach to Asset Pricing
• The Variable Volatility Elasticity Model from Commodity Markets
• The Demand for Assets: Evidence from the Markov Switching Normalized Quadratic Model
• Quantitative Fundamental Theorem of Asset Pricing