Sle, it's more than that: the whole delusion underlying the quant bubble is the idea that data = information.
First of all, it's not really true, as statistical arbitrage in it's classical form pre-dates the whole data science revolution. This said, plenty of quant PMs/shops have jumped onto the big data train once their core strategies started to falter.
As to data not being information - well, some of it is and some of it is not. People in other information-driven activities (best example is the intelligence services) have discovered it long time ago. The true art and science is determining what is noise and what's information in all that data (in finance and elsewhere).
The crowding makes even real information less valuable. Is there information in knowing that more customers have shopped at Walmart based on the satellite images of the parking lots? Sure. Is it a solid trading signal once everyone else knows about it? My prior would be a "no".
The problem however is they can do that all they want, but what really matters is finding true edge/information, not data manipulation, and that takes intellectual honesty, which few have, too busy being blinded and seduced by the voluminous amount of bullship being thrown at the wall. The odds that these young programmers will suddenly stumble upon an edge are basically very close to zero.
It's not any different than any other subdivision of finance, few actually have an edge and most are striving to find it. In fairness, these guys have originally "stumbled upon an edge" and have exploited it successfully for many years - even with the recent flat years and painful October the amount of money that has been made in stat arb over the recent past is staggering.
So they all crowd into simplistic ideas like factor investing, correlation type trades etc that stand no chance of surviving in the intermediate run, especially when the cycle turns
It's is a mature field, there are books written about it. Multiple near-free vehicles allow people to invest in these strategies. People see that it works or at least it worked for a while, so these positions become further crowded which means it becomes further correlated with the market.
PS. I've never done stat arb, but it's an important component of the market so I follow it as much as I follow the rest of the financial landscape (plus, I am envious of the 5th Ave or CPW apartments some of the stat arb PMs bought).
