Quant Bust 2020

World Economics 21(2) (2020) 183-217

29 Pages Posted: 7 Apr 2020 Last revised: 24 Jul 2020

See all articles by Zura Kakushadze

Zura Kakushadze

Quantigic Solutions LLC; Free University of Tbilisi

Date Written: April 7, 2020

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: COVID-19, coronavirus, quant, quantitative, trading, strategy, statistical arbitrage, dollar-neutral, drawdown, loss, market, selloff, backtest, source code, optimization, regression, portfolio, risk, alpha, return, mean-reversion, momentum, machine learning, artificial intelligence, data mining

JEL Classification: G00, G01, G10, G11, G12, G14, G20, G23

Suggested Citation

Kakushadze, Zura, Quant Bust 2020 (April 7, 2020). World Economics 21(2) (2020) 183-217, Available at SSRN: https://ssrn.com/abstract=3570280 or http://dx.doi.org/10.2139/ssrn.3570280

Zura Kakushadze (Contact Author)

Quantigic Solutions LLC ( email )

680 E Main St #543
Stamford, CT 06901
United States
6462210440 (Phone)
6467923264 (Fax)

HOME PAGE: http://www.linkedin.com/in/zurakakushadze

Free University of Tbilisi ( email )

Business School and School of Physics
240, David Agmashenebeli Alley
Tbilisi, 0159
Georgia

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