Volatility scaling unravels as market patterns shift

Waning power of quant approach could be a reason for trend following’s malaise

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A technique widely used by quant investors to adjust their positions is struggling to cope with sudden bursts of volatility after long periods of market calm.

Many quant strategies use volatility scaling to size bets and determine levels of leverage for different assets – piling up the stake when markets are benign and clawing it back when they get fractious.

But several buy-siders tell Risk.net this balancing mechanism needs some rebalancing of its own.

“If you use a simple measure to scale

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