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Equity long/short bloodbath yesterday a combination of three factors — 1. Continued squeezes on widely held shorts 2. Heavy degrossing across the street, pressuring both longs and shorts, 3. Market down when l/s has been running a cycle high net exposure
Even after heavy reduction in both gross and net book size, l/s are *still* above average on both metrics which implies more pain to come over the next few days.
Next step I see is for this to roll up into equity quant market neutral which has been largely unscathed so far, but overlap with l/s will start putting pressure there too, especially as the factors driving overlap (momentum, short interest) start to pick up in volatility...
Which will cause mechanical degrossing across quant emn books even if they are not yet suffering big losses.
If I were a quant emn pm (I’m not) I would be heavily limiting my exposure to short interest factor and probably momentum and size as well, as well as tightly capping individual position size. Good risk control may get you through this.
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