Another Quant Liquidation Under Way?

Two days ago, we told you the there were widespread rumors that a large quant fund—possibly AQR Capital Management—might have run into some liquidity problems. Yesterday the post reported that the Greenwich-based hedge fund had scrapped its planned initial public offering after a dismal performance caused several large investors to pull their cash out of the fund. AQR hasn’t returned our calls. Time to move this story ahead despite the, uhm, lack of actual information.

Watching the markets move in the last few days—particularly with the heavy sell off in the NASDAQ—has many wondering if we’re witnessing yet another quant liquidation like we saw in late July and early August. It would make sense that if one or more funds was facing redemption notices from investors, we might see a sell-off of typical quant positions in order to raise cash. Last time around, stocks the quant funds tended to be long in plummeted, while their shorts rose. It is now part of the conventional wisdom that some of this was due to one or more quant funds liquidating both long and short positions.

So how are the heavily shorted stocks doing? Pretty good, as it turns out. Unless you are short them. Indymac BNCP, Nutrisystem, MGIC Investment CP, KB Home, MVRLP, Ryland Group, and CROCS Inc. are all up today despite the declines in the broader market. The Amex Broker Dealer index is up nearly 1.5%. With this many heavily shorted stocks rising together, it’s at least possible that some of the movement in the markets this week has been due to another quant liquidation.