Massive Momentum Factor Unwind Triggers ‘Epic’ 7 Z-Score Performance Bleed
On Monday morning, before the opening bell sounded on a new week for Wall Street, Nomura's Charlie McElligott flagged a mammoth multi-day move in his "Pain Trade" index, which he explained is just the "simple ratio of a 'Value' factor proxy versus Momentum'". He put things in the context of the recent duration selloff, noting that Value is positively correlated with bear-steepening, while Momentum is inversely correlated to the nascent selloff in rates. The past week and a half witnessed a 16%
3 thoughts on “Massive Momentum Factor Unwind Triggers ‘Epic’ 7 Z-Score Performance Bleed”
H-Man, you have got to “dumb it down” for me on this article. The nomenclature is foreign to me but my perception is there was obviously some type of a move that was a huge surprise. On bended knee I surrender and request you spit this out in something I can understand.
I love the quants. Their work is great until you really need it. Ford motor bonds were downgraded to junk by moody’s today. They still have investment grade ratings from the other two main agencies but you can bet that isnt going to last long. 84 billion is not small potatoes. What do you think happens to risk assets when financial conditions tighten? You can throw your Greeks and standard deviations right out the f’n window. Then the quants will disappear from view for a couple of years, and you will be poorer for the experience of listening to them. Caveat emptor!
Typo 14 billion in ford bonds outstanding