How "Economic Scarring" and Low Rates Have Ravaged Quant Investors
After the high-profile bankruptcies and bailouts of the GFC, markets were left with the “economic scar” and the harsh reality that under poor economic conditions any company could go bankrupt. This combined with historically low rates caused corporate managers and market participants to focus on operational liquidity and economic health as seen through the lens of the yield curve. Joseph Mezrich, managing director at Nomura Securities International, argues that this dynamic has wreaked havoc on equity quant investors as factor premium, diversity, and consequently returns have collapsed post-GFC and become increasingly linked to curve shape. He also drills down specifically on value’s dismal performance and the strong correlation between quant and value performance of late. Filmed on August 3, 2020.