Quant Bust 2020

Zura Kakushadze

Papers from arXiv.org

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.

Date: 2020-06
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Published in World Economics 21(2) (2020) 183-217

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2006.05632

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