Quant Funds and the August Meltdown

[ImBetterAtGolf]

The story referenced a paper by Andrew Lo who writes "A significant rebound of these strategies occurred on August 10th, which is also consistent with the sudden liquidation hypothesis. This hypothesis suggests that the quantitative nature of the losing strategies was incidental, and the main driver of the losses in August 2007 was the firesale liquidation of similar portfolios that happened to be quantitatively constructed."

This was a problem of a crowded and leveraged "trade", much like other crowded trades - quant and nonquant. Some of the issues pointed out in the story are accurate, but the details are generally wrong.

By the way, while all quant funds were affected, including those cited in the posts above, the story's attribution of actions to some thinly disguised funds are way off base. If you think of the funds they mention as just generic quant funds without worrying about which ones, you will get a better picture. The authors got some basic concepts right, but they aren't very well informed.