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Quant Insights from Academia
Academia is a fruitful ground for new investment ideas
The academic research community offers a vast repository of new ideas for
quantitative investors. In fact, many of today’s leading thinkers in quantitative
finance are both academics and practitioners.
In this periodic report, our analysts take the best ideas from our monthly
Academic Abstracts Monitor and test them in more depth and rigorous real-world
investment conditions.
We focus on ideas that are relevant to quantitative investment management.
Esoteric research can be interesting, but we have a philosophy that simple,
intuitive and commercial ideas are best suited to actual implementation.
Which papers did we find interesting?
1. James in London looks at Global sector allocation, a topic that attracts lots
of investor attention. His analysis supports the author’s results and finds that
momentum and seasonal factors work. More importantly, he observes:
Using GICS 1 or GICS 2 sector classification has little effect on which
factors are best / worst, but GICS 2 leads to lower volatility;
There are substantial differences in factor performance across regions
suggesting a regional model works better than a global model.
2. Short sellers have received a lot of bad press since the GFC. Victor in New
York finds that US stocks with high short interest also have high momentum
and growth but unattractive valuations. High (strong buy) analyst
recommendations share similar characteristics to highly shorted stocks,
leading to the idea in the academic paper that combining short interest and
analyst recommendations can produce a more predictive signal. He finds that:
Absolute short interest level is a much stronger signal than combining
short interest with analysts views;
Results differ across market cap groups and so size stratification should
be used when considering factors.
3. With a general consensus amongst Macquarie’s economists that interest
rates are on their way up in developed markets, George in South Africa
studies how investors can use their beliefs on future interest rate changes to
perform style timing. He notes:
The author’s approach is interesting from a theoretical standpoint but its
benefit is limited as it focuses on a single economic variable.
Investors should instead look at more comprehensive approaches like the
Economic Distance which incorporate a broader set of economic
variables for making style allocation decisions.
We welcome your feedback and would be happy to review papers on a bespoke
basis.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Quant Insights from Academia
Academia is a fruitful ground for new investment ideas
The academic research community offers a vast repository of new ideas for
quantitative investors. In fact, many of today’s leading thinkers in quantitative
finance are both academics and practitioners.
In this periodic report, our analysts take the best ideas from our monthly
Academic Abstracts Monitor and test them in more depth and rigorous real-world
investment conditions.
We focus on ideas that are relevant to quantitative investment management.
Esoteric research can be interesting, but we have a philosophy that simple,
intuitive and commercial ideas are best suited to actual implementation.
Which papers did we find interesting?
1. James in London looks at Global sector allocation, a topic that attracts lots
of investor attention. His analysis supports the author’s results and finds that
momentum and seasonal factors work. More importantly, he observes:
Using GICS 1 or GICS 2 sector classification has little effect on which
factors are best / worst, but GICS 2 leads to lower volatility;
There are substantial differences in factor performance across regions
suggesting a regional model works better than a global model.
2. Short sellers have received a lot of bad press since the GFC. Victor in New
York finds that US stocks with high short interest also have high momentum
and growth but unattractive valuations. High (strong buy) analyst
recommendations share similar characteristics to highly shorted stocks,
leading to the idea in the academic paper that combining short interest and
analyst recommendations can produce a more predictive signal. He finds that:
Absolute short interest level is a much stronger signal than combining
short interest with analysts views;
Results differ across market cap groups and so size stratification should
be used when considering factors.
3. With a general consensus amongst Macquarie’s economists that interest
rates are on their way up in developed markets, George in South Africa
studies how investors can use their beliefs on future interest rate changes to
perform style timing. He notes:
The author’s approach is interesting from a theoretical standpoint but its
benefit is limited as it focuses on a single economic variable.
Investors should instead look at more comprehensive approaches like the
Economic Distance which incorporate a broader set of economic
variables for making style allocation decisions.
We welcome your feedback and would be happy to review papers on a bespoke
basis.
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