Three Quant Lessons from COVID-19

Risk Magazine, April 2020.

6 Pages Posted: 21 Apr 2020 Last revised: 1 May 2020

See all articles by Alex Lipton

Alex Lipton

Hebrew University of Jerusalem; Massachusetts Institute of Technology (MIT)

Marcos Lopez de Prado

Cornell University - Operations Research & Industrial Engineering; Abu Dhabi Investment Authority; True Positive Technologies

Date Written: April 30, 2020

Abstract

Many quantitative firms have suffered substantial losses as a result of the COVID-19 selloff. In this note, we highlight three lessons that quantitative researchers could learn from this crisis. First, researchers should develop more nowcasting methods, and pay less attention to forecasts. Second, researchers should use backtesting for deconstructing theories, not for optimizing trading rules. Third, all-weather strategies are more likely to be false, and it is a safer bet to develop strategies for well-defined market regimes.

Keywords: COVID-19, pandemic, SEIR, case fatality rate, reproductive numbers, lockdowns

JEL Classification: G0, G1, G2, G15, G24, E44

Suggested Citation

Lipton, Alex and López de Prado, Marcos and López de Prado, Marcos, Three Quant Lessons from COVID-19 (April 30, 2020). Risk Magazine, April 2020., Available at SSRN: https://ssrn.com/abstract=3580185 or http://dx.doi.org/10.2139/ssrn.3580185

Alex Lipton

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem, Jerusalem 91905
Israel

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Marcos López de Prado (Contact Author)

Cornell University - Operations Research & Industrial Engineering ( email )

237 Rhodes Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.orie.cornell.edu

Abu Dhabi Investment Authority ( email )

211 Corniche Road
Abu Dhabi, Abu Dhabi PO Box3600
United Arab Emirates

HOME PAGE: http://www.adia.ae

True Positive Technologies ( email )

NY
United States

HOME PAGE: http://www.truepositive.com

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