Quant Blame Game Over Stock Sell-Off Pits Nomura Against Nomura

This is a placeholder until ZeroHedge gets only about to posting Charlie McElligott's latest on the CTA crowd.
From the Australian Financial Review, yesterday:

London | After Nomura apportioned blame for Tuesday's dramatic stock plunge on trend-following quants, an unlikely defender has emerged for the systematic hedge funds: Nomura.

In the holler for to uncover the culprit behind the S&P 500's 3.2 per cent rout, the investment banking concern has emerged conflicted over the role of computer-driven traders that surf the market's momentum.

The schism hinges on differences inward how strategists in that location calculate the means programmatic traders reacted to shifts inward sentiment this calendar week - too the purchase too sell orders seen along the way. Figuring out their adjacent moves could hold upwards crucial inward prepping for the adjacent downleg - depending on whose quant even out you lot purchase into.

Their esoteric investing style too billions inward equity holdings that tin hold upwards liquidated en masse 1 time over again finds trend-chasers at the pump of marketplace intrigue. In the past, it's pit AQR Capital Management against the likes of JPMorgan Chase & Co.

At Nomura correct now, it's in-house. The outset shot came from Charlie McElligott on the equity-derivatives sales squad inward New York. His quant model, which reverse-engineers returns, has obtained something of a cult-following on Wall Street - flashing out sell signals during specially tumultuous days.

On Tuesday, he argued commodity trading advisers, or CTAs, hammered markets to the downside every bit a three-month stair out of S&P 500 momentum turned negative.
Less than 24 hours later, his Tokyo-based colleague amongst the query team, Masanari Takada, told clients CTAs couldn't perhaps serve every bit the whipping man child - having pared their bullish positions inward the before tumble swoon.

"On our query side, the CTA model did non demonstrate whatsoever selling signal beforehand, too CTAs were forced to follow the marketplace reject somewhat," Takada said yesteryear email.

His model suggests coming into this week, CTAs had a little overweight seat that cruel inward sympathy amongst the broader marketplace on Tuesday - the worst twenty-four hours since the Brexit plebiscite for the S&P next a 1 per cent gain.

Differences inward published persuasion inside investment banks are mutual given the complexity of high-octane markets.

McElligott reckons these leveraged funds were bullish to the max - adding $US42 billion of fresh exposure cheers to Monday's rally, which was spurred yesteryear expectations the G-20 had secured a thawing inward Sino-US merchandise tensions.

Those longs were hence abruptly whittled downward to a 5th the next twenty-four hours - helping to whipsaw United States of America stock markets inward the process, according to the strategist.

"Due to the choppiness too volatility profile year-to-date, you've had a actually tight band - basically 100 points - that inward 2 days of trading tin larn from max long to max short," McElligott said yesteryear telephone. "CTAs' impact, too potentially their purpose inward the overall market, is larger than commons because key managers accept been hence crushed yesteryear functioning too grossed down."...MORE

Previously:
Tues. Dec. 4
Markets: What Triggered the Latest Whack