Quant Bust 2020
Portfolio Management
2020-07-24 v1 Risk Management
Abstract
We explain in a nontechnical fashion why dollar-neutral quant trading strategies, such as equities Statistical Arbitrage, suffered substantial losses (drawdowns) during the COVID-19 market selloff. We discuss: (i) why these strategies work during "normal" times; (ii) the market regimes when they work best; and (iii) their limitations and the reasons for why they "break" during extreme market events. An accompanying appendix (with a link to freely accessible source code) includes backtests for various strategies, which put flesh on and illustrate the discussion in the main text.
Keywords
Cite
@article{arxiv.2006.05632,
title = {Quant Bust 2020},
author = {Zura Kakushadze},
journal= {arXiv preprint arXiv:2006.05632},
year = {2020}
}
Comments
29 pages; to appear in the Apr-Jun 2020 issue of The World Economics Journal