Thursday, April 30, 2009

Highlighting The Quants' Failed Attempts At Leveraging

As the chart below shows, quant funds attempted to leverage five times in the month of April only to fail every single time. In the meantime the higher trading volume on both the leveraging and deleveraging phase was welcome to brokers like JPM and UBS (and maybe MS?). Net result, the quant performance numbers will be horrendous, as they did not succeed to catch up with their losses as the market went against every single quant factor in existence except for momo high frequency traders who played the simplest of all possible reversion patterns while the market squeezed progressively higher. As ZH reported, the pain at RIEF last week was already likely beyond fixing: this week's update will only make for some low calorie cake icing.

(for new readers, I recommend you read up on the attached labels to get a sense of the problem)

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