1
$\begingroup$

I obviously don't want to generalise here, but my initial impression of stat arb and relative value arb is that these strategies earn stable pennies during bull markets when volatility is depressed but perform very poorly when vol spikes (e.g. in down markets). This impression stems from the LTCM blow up, the quant quake in '07, and volmaggedon in 2018 (?).

Is this view generally correct or completely wrong? And are there people who have done research into this?

Interested to see what people's thoughts on this are.

$\endgroup$
2
  • 1
    $\begingroup$ I think they're mostly short the tail of the volatility, when there's a dislocation like we had before fed "whatever it takes" moment a few weeks ago (people selling whatever assets they can, even the supposedly safest ones). If you can hold through these days without getting liquidated by not being overly leveraged beforehand, you should perform relatively well in a volatile market (more opportunities) $\endgroup$
    – Lliane
    Apr 20 '20 at 1:38
  • $\begingroup$ interesting @Lliane, perhaps then it isn't about the strategy so much but rather how much leverage you're taking on that creates the short vol payoff structure. The more leverage you take on the more short vol you are/the more exposed you are to a spike in vol $\endgroup$ Apr 20 '20 at 9:09

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.