Is it over? It was a wild day, beginning with "mega-turnover," but stocks that I previously noted as having irrational behavior seemed to change course almost at the open today. Stocks that were zooming up zoomed down and vice-versa. Perhaps it was the money transfusion (more on that here), or perhaps bargain hunters swooped in. If these stocks are indicators of the bloodbath, then the quant funds got a substantial reprieve today.
Renaissance takes a hit. via 1440 Wall Street: Super Quant Jim Simons' Renaissance Tech reported an 8.7% loss on his $25B Institutional Equity Fund (Video) today, confirming earlier rumors (the text of Simon's letter here). A 45-year look-back model suddenly went "out of whack over the first six days of August," according to David Faber. There's speculation on the video that other traders "cracked the code" at Rennaissance and exacerbated the problems. There's no confirmation I can find that SAC Capital was "running algorithms in reverse," but I agree it makes perfect sense.
Other tidbits:
Man Group shares slump on AHL Quant Fund redemption fear and delays it's historic hedge fund IPO (more here).
World Beta provides some evidence of both long and short portfolios he tracks both losing value.
Goldman Sach's Global Alpha is (was) apparently down 26% for the year (more on this rumor) and closes it's North American Equity Opportunities Fund and rescues Game Group which was rumored to be impacted by long/short fund liquidations at Citadel, according to the link.
Whether the bloodletting is over or not, one thing is for sure, redemptions are looming and the impacts of losses will be felt.
I have posted a new piece on the quant bloodbath at ZB Right now it seems limited to Long/Short and Market Neutral funds, but I wonder if other funds that are based on quant models took into account not only a credit squeeze but the run on other funds whose positions are not transparent, and the effect it will have on institutional investors confidence on funds that may be doing well and are completely unrelated (or so they think) to this mess. Hopefully these robots do not produce the same output as the flesh covered robots who have been saying this all will be contained.
Posted by: Zero Beta | August 11, 2007 at 05:50 PM
That's a good question. Several reports I read seem to indicate that none of the quant models involved in this mess had anything like this built into the model, which is astonishing, given the billions involved. I wouldn't want to be in any kind of a leveraged "crowded trade" right now, because any kind of external event could cause your fellow traders to begin liquidating. If you're unleveraged, you can probably take advantage of the situation.
Posted by: Alan J | August 12, 2007 at 10:47 AM