The automated nature of quants—from big funds like Two Sigma Investments LLC to high-frequency trading firms like Virtu Inc.—causes some novel and lightning-fast behavior during special events like the sell off this week, say executives and analysts who follow quant trading. Paired with a huge shift toward investing in exchange-traded funds, which act as simple algorithms, trends ricochet across markets and asset classes faster than ever, they said. As quant- and other computer-driven firms look at potentially taking advantage of higher volatility, there is a concern that could trigger another “quant meltdown,” a reference to when several big funds simultaneously rushed to sell in 2007, causing losses at other firms and more selling. Many quant algorithms are honed using historical data, so their behavior in new environments—such as with the record surge in volatility recently—can be unexpected.

https://www.wsj.com/articles/quants-embrace-recent-selloff-even-as-everyone-blames-them-for-it-1517949373