Are Quant Strategies Inward Problem All The Same Again?

There were reports that quant strategies convey been suffering 1 time again inward January, given the marketplace set turmoil generated partly past times the Societe Generale scandal. Mr. Matthew Rothman of Lehman Brothers pinned the blame on momentum strategies (Hat tip: previous post, Dec has been a disastrous calendar month for value (or mean-reverting) strategies, based on both populace commentaries in addition to personal experience. Yet, every bit always, mean-reverting strategies bounced dorsum inward Jan in addition to all the hurting is gone. In fact, the Societe Generale scandal in addition to the subsequent 1/22 Fed bailout has been a huge bonanza to mean-reversion traders, but similar the August disaster had been. (Remember: mean-reversion traders net turn a profit from providing liquidity during marketplace set panic.) Meanwhile, though Dec has been a skilful calendar month for momentum strategies, Jan has acquire increasingly inhospitable to them. But 1 should non live on surprised at all. As I convey explained before, momentum strategies by in addition to large tend to live on to a greater extent than unstable in addition to convey lower Sharpe ratios than reversal strategies. Any wise quantitative portfolio managers would ever allocate a lower proportion of working capital missive of the alphabet to momentum strategies than to reversal strategies. Hence it is no excuse at all to say that a quant portfolio has been wound past times losses inward momentum trading -- they are to live on expected quite frequently!