Did LTCM ever have an edge?

[short&naked]

It seems to me that without having used a lot of leverage their ROI would have been in the single digits. One of the managers even commented that their returns were the result of gathered pennies. This seems very similar to the incremental profits of a short vol strategy. Is it fair to conclude therefore that their method had about the same edge as any unhedged, naked short volatility strategy?

 

[atticus]

Well yeah, they were short the on/off the run cash spread and lost most of the monies shorting vol-swaps. It didn't help that they would replicate one Sov trade in another country by simply doubling or tripling the notional exposure as though the positions weren't correlated. They also lost nearly a billion in equity swaps in risk-arb.