Three Quant Lessons from COVID-19

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.