Financial analyst versus Quantitative analyst
A quaint or a quantitative anaylst is someone who only uses statistical methods and the application of mathematical methods to risk management and financial problems. Persons who have careers in industrial mathematics and other similar industries will fall in the same category of professionals.
The original quantitative analysts were only concerned with risk management and derivative pricing, they were ’sell side quaints“ who were connected to market makers firms. There has been an expansion in the meaning of the term over many years, and now all the persons who are involved in all application of mathematics in finance; eg. Statistical arbitage, algorithmic trading, electronic market making, these are the buy side.
Quantitative analysis provides a huge source of emploment for persons who have PhD degrees in Mathematics and Physics; very often they come from physics, engineering and applied mathematics backgrounds and not economic related fields. They might need extensive skills in computer programming, commonly C, C++, Java, R, MATLAB, Mathematica, Python, or a financial mathematics masters degree.
Quantitative analysts use information from different forms of mathematics: calculus developed around partial deferential equations, linear algebra, statistics and probability, discrete mathematics and econmetrics. Some of those on the buy side use machine learning sometimes. A lot of quantitative analysts are not trained in mainstream economics, they often depend on a mindset taken from physical sciences. Quants apply mathematical skills they aquire from diverse fields sucg as engineering, physics and mainstream economics. The skills they use will include linear algebra, advanced statistics, and partial differential equations and solutions to these. That are based on numerical analysis.
Numerical method frequently used are:
Monte Carlo method- Even though Monte Carlo simulation is also popular in risk management, it is used to solve partial differential equations.
Finite difference method- is used when solving partial differential equations
Spint interpolation- required for imterpolate values from forward and spot interest rates curves and volatility smiles.
Ordinary least squares- In statistical regression analysis it is used to estimate parameters
Bisection, Newton, and Secant methods- maxima, roots, minima of functions (e.g. internal rate of return) are found using this method.
Generally, analysts are divided into ’sell-side and ’buy side’. A sell-side analyst’s work is sold to the buy-side organisations for money or other benefits, it is not used by its employer to invest directly.
A buy-side analyst will work for a company that buys and holds stocks for itself, depending on what the analyst reccommends; these analysts are fund managers.
The sell-side may be higher paid, it is more like a sales and marketing role. There are persons who begin careers on the sell side at large banks before they move to the buy side at a fund. Research is regularly used as ’soft money’ and not sold directly, it is sometimes used instead of money when companies do business with preferrred clients; and used to promote the companies that are being researched when the sell-side has an interest in them, it is used as a form of marketing and leads to conflicts of interests sometimes.
However, the buy-side is sometimes thought of as more prestigious scholarly and professional even though the sell side can help persons to earn more.
Investors will either buy, sell or hold a security at the end of the assessment of analyzed securities after an analyst has provided a rating recommending an investment action. A ’sell-side“ (brokerage) analysts job includes writing by reports or notes, while the express opinions, this is not oftem required for the buy-side (investment firms) analysts. Analysts will use technical chart analysis and tactical evaluation of the market environment routinely along with fundamental analysis principles.
In the early 2000s there were legislative changes brought about by corporate scandals that masde information gathering by analysts potentially illegal and difficult in many markets; one example of this is Regulation FD (Fair Disclosure) in the US, similar rules were adopted by other developed countries as well. However, analysts have obtained information by participating in public conference calls and are able to ask direct questions to managers or by studying public records and other filings by the company. They also gather information in meetings where small groups are and they can interact with senior members of management teams.investment banks, banks,
Pension and mutual funds, hedge funds, securities firms, insurance companies and other companies will employ financial analysts, they help companies or clients to make investment decisions. Balance sheet analysis is done by financial analysts when they are employees of commercial lending entities. The examine corollary data and audited financial statements so they can assess lending risks. In an investment bank or in a stock brokerage house they read company financial statements they manage to determine a company’s value by analyzing sales, commodity prices, costs, expenses and tax rates. They also value and project future earnings in many insitutions. Financial analysts can meet with company managers and gain insight into the company’s managerial effectiveness and prospects in institutions. They will study an entire industry , as they assess current trends in business practices, products and industry competition, they monitor the economy to determine how it will affect the earnngs of companies. They also stay informed about new regulations or policies that could affect the companies they work for.
Spreadsheets and statistical software packages are used by Finacial analysts to analyze financial data, develop forecasts, see financial modeling and spot trends. They depend on their results to write reports and make presentations and they also make recommendations to those who want to buy or sell a particular security or investment. There are senior analysts who actually decide to buy or sell assets for companies or clients when they are responsible for managing assets. There are also analysts who can use data to measure financial risks that are associated with making serious investment decisions.
Financial analysts work in acquisition departments and mergers or take over of businesses. They may also make presentations to prospective investors about the benefits they can derive when they invest in new companies. They will ensure that forms and written material necessary for compliance with Exchange commision regulations and securities are complete and accurate. The Financial analysts who are in the investment banking departments of banking firms or securities will work in teams as they analyze the future prospect of companies when they want to sell shares to the public for the first time. As there are both buy-side and sell-side analysts.
The job of collecting industry data from balance sheets and capital adequacy and income statements in the banking sector, is hadled by financial analysts, they also handle mergers, acquisition history and other finance related news for their clients. They assist their clients to do peer analysis when they standardize different company’s data, so it looks uniformed, as the help their clients to make the best decisions as they invest across regions. Abundant financial ratios calculated from collected data is also gathered from financial statements by them to read the company’s bottom line. There job should not be confused with data entry, as it goes beyond that.
There are other financial analysts who are employed by rating agencies, they are called rating analysts, they do an evaulation of businesses or government and decide if can find a way to repay their debt. A rating team will assign an evaluation to a company’s or government’s bonds based on their evaluation. There are others who are responsible for performing budget, cost, and credit analysis.
StarMine that is owned by Thomson Reuters or Institutional investor magazine ranks analyst performance by a range of services.
Small companies that no analyst coverage under performed by 0.7 percent and those with analyst coverage out performed peers by 2.5% when research was done by Numis.
When companies fall outside or across multiple sectors, they are punished in ratings of analysts. A 1999 paper that was done by Ezra Zuckerman found this, Equity analysts divide securities by discrete sectors
A trader can trade based a many different strategies such as examining a company’s financial statements to determine its value to quantitative/scientific (using statistical analysis to determine market trends); they execute trades for banks, hedge funds and trading firms.
There are other traders who are execution traders, they simply execute the strategies of others, as they attempt to use strategies to get the ’best execution“ and trade many securities in order to get the best prices over a specific period of time. Having an under graduate degree in related fields (such as mathematics, economics and finance is not always needed) but this is enough qualification for these traders.
A trader can earn more money when they generate more profits for a firm or they can receive a salary with added compensation determined by the amount of profit generated for the firm while trading.
Skilled traders can earn huge amounts of money early in their career, but their job is unstable as they are quickly fired when they don’t perform well.
A quantitative trader or a quatitative modeler is refered to as a Quant, they work to develop computer-based trading strategies that execute trades whenever the right market conditions are met, to generate value that is based on statistical analysis. An advanced degree is sometimes required for persons to qualify for the job of a quantitative modeler or quantitative trader. The popular degrees are PhD in mathematics, computer sciences or physics. Financial Engineering and Quantitative/mathematical finance masters degrees are increasingly required in these roles. Quants usually receive salaries. Quants sometimes use fast-paced algorithmic trading. Financial models can be used to determine the movement of ecomomic factors such as interest rates or security based value.
An analyst is involved in many different roles, from the lowest level financial employee to the senior employee in a fixed-income placement of companies and fundamental research on equity. Analysts require an under graduate degree in a related field. However, in order for persons to rise to the analyst level they will need to produce years of quality work and an MBA.