Three days in August 2007 will live forever in algorithmic investing infamy. Numerous quantitatively driven stock funds leapt en masse off a cliff-just like lemmings.
From the 7th through the 9th, a few quant fund computer models started to unwind stocks, as the first footsteps of the credit crisis began to affect calculations. Some sales were to reduce risk. Others responded to margin calls. This spurred other models to respond by selling their stocks, and so on. The cascade of liquidation evaporated as much as 20% of fund values.