This is a great intro book to factor based stock screening – Quantitative Strategies for Achieving Alpha by Richard Tortoriello.
I would place Greenblatt’s books, Haugen’s The Inefficient Stock Market, and Chinicari’s Quant Equity Portfolio Management in the same league (in order from simple to complex.)
In the more than 40 single factors he tested from 1987-2006, guess which factor was most predictive?
Momentum.
Following close behind were measures based on free cash flow and enterprise value to EBITDA.
The problem we have now with quant equity analysis is that everyone has the same data. The data and databases used to be a source of value added, but I am not so sure they are going to be going forward. Expensive packages like ClarFi ModelStation and FactSet – and even inexpensive options like Portfolio123 – allow the user to rank factors and build multi-factor models. But all this does is lead to herding and liquidity problems like the Summer of ’07. Even the field of forensic accounting has gotten more crowded. Schilit wrote one of the best (and first?) books on forensic accounting, and his CFRA (now absorbed into RiskMetrics) has spawned a number of competitors (Audit Integrity, Assay Research).
I’m interested to hear your thoughts here. How can equity quants add value vs their competitors? Are there more creative ways of looking at the data that could be value added?
I have been able to find some interesting results on dynamic models and hedging, but I still haven’t seen any studies that break the factor tests into bull and bear markets. Intuitively, it would make sense that investors would prefer higher-quality earnings and balance sheets during bear markets, and earnings growth during bull markets, etc etc. I think a test for factors based on above/below a long term moving average would be a great study to perform.
Any links or references?
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I was also reading The Origins of Wealth this weekend, and had a hard time getting through it. Although it did contain a quote from probably my favorite play of all time, Stoppard’s Arcadia:
"It makes me so happy. To be at the beginning again, knowing almost nothing…a door like this has cracked open five or six times since we got up on our hind legs. Its the best possible time to be alive…"
Looks like some of your links are messed up in this post… probably an issue with migration from Blogger?
Looks like some of your links are messed up in this post… probably an issue with migration from Blogger?
Mebane, what indicators to you use in identifying momentum buys and sell signals? Many thanks for your views.
Fixed, thanks.
Do you look at momentum? EMA crossover? Another signal?
While everyone has access to the data, not everyone has the combination of specific business expertise and quant abilities to put them together. The next step is to capture investors' specific areas of expertise in more complex and targeted screens. This should leave lots of room for highly specialized investment strategies driven by expertise.
You mention “The Origin of Wealth” (I presume the singular “Origin”, not plural) which I am also reading and think it is just fabulous. The entire area of complexity theory and evolution is one with great promise, I believe.
While everyone has access to the data, not everyone has the combination of specific business expertise and quant abilities to put them together. The next step is to capture investors' specific areas of expertise in more complex and targeted screens. This should leave lots of room for highly specialized investment strategies driven by expertise.
You mention “The Origin of Wealth” (I presume the singular “Origin”, not plural) which I am also reading and think it is just fabulous. The entire area of complexity theory and evolution is one with great promise, I believe.