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leftskew


Total Posts: 21
Joined: Sep 2019
 
Posted: 2020-06-08 15:39
Looks like we are in the midst of a big momentum crash. Obviously the magnitude is somewhat arbitrary, but based on what I've seen it is quite significant, the biggest one since '09. It is interesting that the last huge crash was during the recovery from GFC in 09, and the current crash was as the market recovered from the coronacrisis. I am also hearing of lots of losses in quant-land as a result including from the 2 open rentec funds.

TonyC
Nuclear Energy Trader

Total Posts: 1343
Joined: May 2004
 
Posted: 2020-06-09 11:55
Cross-section momentum, or time series momentum (i.e trend)?

If it's cross-section momentum, (long positive momentum stocks short the negative momentum stocks) did both legs lose equally? Or did the long leg lose more than the short leg? Or did the short leg lose more than the long leg?



flaneur/boulevardier/remittance man/energy trader

EspressoLover


Total Posts: 432
Joined: Jan 2015
 
Posted: 2020-06-09 14:48
This was basically Moskowitz's hypothesis back from his paper on momentum crashes in 2013. The idea being that the short leg of (cross-sectional) momentum does particularly bad during the recovery phase of crises. I'm not sure if this applies to June 2020, but just eye-balling the market it seems to be the case.

The general idea is that during following market upheaval, the worst losers tend to embed a "crisis risk premium". It took a lot of balls to buy CCL in mid-April, in a way that's not fully reflected by its CAPM beta. In normal times, MOMO is primarily capturing an idiosyncratic anomaly related to price discovery in single-names. (Either under-reaction or over-reaction or whatever the story of the month is.)

But during a crisis, particularly on the loser-side, that effect gets overwhelmed by general exposure to a non-linear crisis factor. In normal times most of the losers have their own unique, stock-specific stories. In 2020, most of the losers were losers primarily because they were the names with the highest exposure to Covid. The upshot is that the basket becomes a lot less diversified, and therefore more volatile. Two is that you're effectively reversing Baron Rothschild's advice by selling when there's blood in the street.

One thing that I wish existed, which would be super-interesting to observe, would be a liquid options market on style factors. It'd be pretty interesting to see how the "Momentum-VIX" changes over time.

Good questions outrank easy answers. -Paul Samuelson

someprimetime


Total Posts: 15
Joined: Jul 2018
 
Posted: 2020-06-09 18:11
Hedged with volatility indexes and PMs/crypto. I wouldn't buy into this market with your money.

ABsecurity
Banned

Total Posts: 1
Joined: Jun 2020
 
Posted: 2020-06-10 19:44
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ronin


Total Posts: 585
Joined: May 2006
 
Posted: 2020-06-12 12:47
I can't say I have heard anything about this crash just yet.

@leftskew, you sure it's as big as you say it is? And not just a couple of guys who got caught short?

"There is a SIX am?" -- Arthur

leftskew


Total Posts: 21
Joined: Sep 2019
 
Posted: 2020-06-12 17:54
Our IR people give us some indication of how other funds (especially those in our neck of the woods) are doing. Supposedly rentec open funds (rief/ridge) got slammed during the first week of June coincident with the momentum crash, and our investors were anxious because some other firms in the quant equity market neutral space were hit hard. Of course it is not really just a momentum crash, seems lots of the common style factors have had huge moves this month. It is always interesting to me to see huge moves in style factors with relative calm in the market (well, until yesterday that is).

In the few days since my original post, momentum has rallied back a lot and recovered a good chunk of the losses, so now if you look at a monthly chart it doesn't seem so bad. Presumably most of the funds affected also recovered unless they cut exposure at the bottom. Investors might have no clue if they don't see weekly pnl figures.

For those who are curious, just check out DJTMNMO Index on the terminal.

Edit: Just found the message from our IR guy, supposedly rentec RIDGE was down 8% first week of June! I expect a bounce this week but that is some serious vol.

Billymazee


Total Posts: 5
Joined: Oct 2019
 
Posted: 2020-06-12 20:42
Just made the FT. They quote returns for RIDA, but RIDGE and RIEF are similarly down.

https://www.ft.com/content/6bd17811-3205-454e-89e4-953dce6b4dfe

gamerx


Total Posts: 15
Joined: Sep 2012
 
Posted: 2020-06-14 07:15
I am hearing the same from my peers in the equity market neutral space. Especially those with large exposures in the U.S markets.

This kind of resembles what happened in Mar earlier this year. Though that was more extreme in terms of severity and timespan. Considering that Mar probably brought many funds in this space to the brink already, we think it might be another risk-off event after a mixed May.


ronin


Total Posts: 585
Joined: May 2006
 
Posted: 2020-06-15 21:26
Yes, it trickled down to me as well now. The same people who got hammered in March got hammered in June.

As the Brits say, it would take a heart of stone not to laugh at their predicament...

"There is a SIX am?" -- Arthur

cherk


Total Posts: 3
Joined: Aug 2019
 
Posted: 2020-06-16 17:12
Anyone have YTD numbers? I saw the bbg article on Rentec open funds -20% ytd through June

Billymazee


Total Posts: 5
Joined: Oct 2019
 
Posted: 2020-06-16 20:48
RIDA and RIDGE both around that, RIEF slightly better.

gamerx


Total Posts: 15
Joined: Sep 2012
 
Posted: 2020-06-19 05:46
Am hearing that many teams have since recovered and are flat to positive mtd.

sharpe_machine


Total Posts: 60
Joined: Feb 2018
 
Posted: 2020-06-30 19:28
@EspressoLover

> It took a lot of balls to buy CCL in mid-April, in a way that's not fully reflected by its CAPM beta.

So, what the technical reason not to continue to sell CCL, RCL, CHK, etc. at these moments?

EspressoLover


Total Posts: 432
Joined: Jan 2015
 
Posted: 2020-06-30 20:43
IMO, there's a lot of window-dressing effects at play. Nobody wants to be the fund manager holding airline stocks in the middle of a pandemic lockdown. Especially when your performance is already deep in the red YTD. Your investors have had enough of your shit, and now's not the time to act cute and make bold bets. At best you look reckless, at worse you look clueless.

Secondarily I think there are also behavioral dynamics at play. Especially fragmented-self and regret minimization. Someone who behaves in a socially proscribed manner, such as buying CCL in the middle of a pandemic, will feel especially remorseful if/when they get burned. People who lose money, but in conventional and socially approved vehicles, typically feel much less regret. At its core, human decision making exists to serve tribal apes.

Good questions outrank easy answers. -Paul Samuelson

sharpe_machine


Total Posts: 60
Joined: Feb 2018
 
Posted: 2020-06-30 22:29
Thanks for the response. I think I did not get it from the first try.

Assume I am a young quant (means that I have not seen lots of such events before) and run something which continues to tell me every day to sell those names. And my track record so far suggests that I do everything right and should believe models to some extent (well, this already sounds overconfident, but the general idea is clear). What could be my reasoning to risk-off at least this part of my portfolio?
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