This is perhaps the most valid criticism of quant trading. Quants must
rely on historical data to make predictions about the future. As a result
of this dependency, it is likely that quants will suffer any time there is a
significant and sudden change in the way markets behave. It bears repeating
and emphasizing that, in order for the event to be of importance to a
quant, the regime change must be both large and without much warning.
Perhaps the most challenging time for quant trading in its known history
has been the period from late July 2007 through August 2008. Over
this roughly 13‐month window, quants (particularly those implementing
equity market neutral strategies) faced a liquidity crisis and at least three
separate episodes of substantial pain. You can see this illustrated in part
in Exhibit 11.1.