Quant Bust 2020
Published: June 2020
We explain in a nontechnical fashion why dollar-neutral quant trading strategies (e.g. statistical arbitrage) suffered substantial losses (drawdowns) during the COVID-19 market sell-off. We discuss: (i) why such strategies work during “normal” times; (ii) the market regimes when they work best; and (iii) their limitations and why they “break” during extreme market events. An accompanying appendix (with a link to freely accessible source code) includes back-tests for various strategies, which put flesh on and illustrate the discussion in the main text.