Contents
CHAPTER 1 An Introduction to Quantitative Equity Investing
Paul Bukowski
Fundamental vs. Quantitative Investor
The Quantitative Stock Selection Model
The Overall Quantitative Investment Process
Chapter 2 Equity Analysis Using Traditional and Value-Based Metrics
James L. Grant and Frank J. Fabozzi
Overview of Traditional Metrics
Overview of Value-Based Metrics
CHAPTER 3 A Franchise Factor Approach to Modeling P/E Orbits
Stanley Kogelman and Martin L. Leibowitz
Formulation of the Basic Model
P/E Myopia: The Fallacy of a Stable P/E
Franchise Valuation under Q-Type Competition
CHAPTER 4 Relative Valuation Methods for Equity Analysis
Glen A. Larsen Jr., Frank J. Fabozzi, and Chris Gowlland
Basic Principles of Relative Valuation
CHAPTER 5 Valuation over the Cycle and the Distribution of Returns
Anders Ersbak Bang Nielsen and Peter C. Oppenheimer
The Link Between Earnings and Returns
The Phases Can Be Interpreted in Relationship to the Economy
Asset Class Performance Varies across the Phases
Incorporating Cyclicality into Valuations
Appendix: Dates and Returns of the Phases
CHAPTER 6 An Architecture for Equity Portfolio Management
Bruce I. Jacobs and Kenneth N. Levy
CHAPTER 7 Equity Analysis in a Complex Market
Bruce I. Jacobs and Kenneth N. Levy
An Integrated Approach to a Segmented Market
Constructing, Trading, and Evaluating Portfolios
CHAPTER 8 Survey Studies of the Use of Quantitative Equity Management
Frank J. Fabozzi, Sergio M. Focardi, and Caroline L. Jonas
Challenges for Quantitative Equity Investing
Modeling After the 2007–2009 Global Financial Crisis
CHAPTER 9 Implementable Quantitative Equity Research
Frank J. Fabozzi, Sergio M. Focardi, and K. C. Ma
Select a Sample Free from Survivorship Bias
Select a Methodology to Estimate the Model
CHAPTER 10 Tracking Error and Common Stock Portfolio Management
Raman Vardharaj, Frank J. Fabozzi, and Frank J. Jones
Forward-Looking vs. Backward-Looking Tracking Error
Determinants of Tracking Error
Marginal Contribution to Tracking Error
CHAPTER 11 Factor-Based Equity Portfolio Construction and Analysis
Petter N. Kolm, Joseph A. Cerniglia, and Frank J. Fabozzi
Developing Factor-Based Trading Strategies
Desirable Properties of Factors
Building Factors from Company Characteristics
CHAPTER 12 Cross-Sectional Factor-Based Models and Trading Strategies
Joseph A. Cerniglia, Petter N. Kolm, and Frank J. Fabozzi
Cross-Sectional Methods for Evaluation of Factor Premiums
Performance Evaluation of Factors
Model Construction Methodologies for a Factor-based Trading Strategy
Backtesting Our Factor Trading Strategy
Appendix: The Compustat Point-in-Time, IBES Consensus Databases and Factor Definitions
CHAPTER 13 Multifactor Equity Risk Models and Their Applications
Anthony Lazanas, António Baldaque da Silva, Arne D. Staal, and Cenk Ural
Applications of Equity Risk Models
CHAPTER 14 Dynamic Factor Approaches to Equity Portfolio Management
Dorsey D. Farr
CHAPTER 15 A Factor Competition Approach to Stock Selection
Joseph Mezrich and Junbo Feng
Does the Alpha Repair Process Work?
CHAPTER 16 Avoiding Unintended Country Bets in Global Equity Portfolios
Michele Aghassi, Cliff Asness, Oktay Kurbanov, and Lars N. Nielsen
Country Membership and Individual Stock Returns
Ways to Build Active Global Portfolios
Why Does the Naive Stock Selection Portfolio Make Country Noise Bets?
CHAPTER 17 Modeling Market Impact Costs
Petter N. Kolm and Frank J. Fabozzi
Liquidity and Transaction Costs
Market Impact Measurements and Empirical Findings
Forecasting and Modeling Market Impact
CHAPTER 18 Equity Portfolio Selection in Practice
Dessislava A. Pachamanova and Frank J. Fabozzi
Portfolio Constraints Commonly Used in Practice
Benchmark Exposure and Tracking Error Minimization
Incorporating Transaction Costs
CHAPTER 19 Portfolio Construction and Extreme Risk
Jennifer Bender, Jyh-Huei Lee, and Dan Stefek
Appendix: Constructing Out-of-Sample Shortfall Betas
CHAPTER 20 Working with High-Frequency Data
Irene Aldridge
How is High-Frequency Data Recorded?
Properties of High-Frequency Data
High-Frequency Data are Voluminous
High-Frequency Data are Subject to Bid-Ask Bounce
High-Frequency Data are Irregularly Spaced in Time
Equity Correlations Decay at High Frequencies
CHAPTER 21 Statistical Arbitrage
Brian J. Jacobsen