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Low Volatility Raises Paranoia Over Leverage in the Quant Fund World

  • Market neutral factors mirror low volatility in stocks
  • Low returns cause funds to add leverage or find new factors

The pain of an almost paralyzed stock market has seeped its way into the money machine of equity quants, raising anxiety levels among analysts who say they’ve seen this movie before.

It’s below the surface, where collections of look-alike stocks grouped according to investment traits like cheapness or profitability have fallen into even deeper slumber than the market as a whole. Average daily price swings in market-neutral momentum and volatility are the smallest in four years, data compiled by Bloomberg show.