The adjustment of hedge fund strategies may also be a signif...

70233049 wrote a note · Jan 27, 2021 20:26

The adjustment of hedge fund strategies may also be a significant factor. Many hedge funds operate in a long/short model, with almost zero exposure to market risk, and then add multiple levels of leverage. In this model, there is a large amount of long positions and short positions, and the profit comes from the difference between the two. Now, the short side has been heavily squeezed by a large multiple, resulting in heavy losses. Hedge funds must scale back their positions and comprehensively shrink their balance sheets. Therefore, while closing out the short positions, the long positions must also be sold. Since their long positions are stocks that have previously performed well, selling them off across the board will inevitably disrupt the market and cause a decline.

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