Leitura do Dia - What Happened To The Quants

What Happened To The Quants
In August 2007?
Amir E. Khandaniy and Andrew W. Loz
First Draft: September 20, 2007
Latest Revision: November 4, 2007
Abstract
During the week of August 6, 2007, a number of quantitative long/short equity hedge funds experienced unprecedented losses. Based on TASS hedge-fund data and simulations of a specific long/short equity strategy, we hypothesize that the losses were initiated by the rapid \unwind" of one or more sizable quantitative equity market-neutral portfolios. Given the speed and price impact with which this occurred, it was likely the result of a forced liquidation by a multi-strategy fund or proprietary-trading desk, possibly due to a margin call or
a risk reduction. These initial losses then put pressure on a broader set of long/short and
long-only equity portfolios, causing further losses by triggering stop/loss and de-leveraging
policies. A signicant rebound of these strategies occurred on August 10th, which is also con-
sistent with the unwind hypothesis. This dislocation was apparently caused by forces outside
the long/short equity sector|in a completely unrelated set of markets and instruments|
suggesting that systemic risk in the hedge-fund industry may have increased in recent years.