Since this forum is for "all aspects of ... short-term investing", I would like to start a thread about Quantitative Equity Investing. My first question is (as far as you know,) what is the usual holding time (of a stock) for quantitative investing, practically? Here is another thread about quantitative investing: http://www.elitetrader.com/vb/showthread.php?s=&threadid=74903
Unsure whether the following represents a fair picture/outline of quantitative investing: http://en.wikipedia.org/wiki/Quantitative_investing Q Quantitative investing represents an investing technique typically employed by the most sophisticated, technically advanced hedge funds. These quant shops employ fast computers to find predictable patterns within financial data. Some of the larger quant shops include but are not limited to Renaissance Technologies' Medallion Fund, D. E. Shaw, Barclay's Global Investments (now known as Blackrock), Numerics, GMO, First Quadrant,Robeco, etc. Typically, quant investing is implemented by people who have spent time in the physics, math, computer science, or statistics disciplines. The condensed results of quantitative analyses, however, can be readily accessible to all far-from-quantitative investors, when presented in an intuitive framework. For example, "The Quant Investor's Almanac 2011: A Roadmap to Investing" (Wiley, 2010)[1] brings quantitative investing strategies to everyday investors without scientific background. The process consists of thorough examination of vast databases searching for repeating patterns -- persistent occurrences of a phenomena, correlations among liquid assets ("statistical arbitrage" or "pairs trading"), or price-movement patterns ("trend following" or "mean reversion"). UQ
My second question is: Where can I get any commonly available data(bases) for analysis of quantitative equity investing? Q http://www.shkhedge.com/file/media_center/m47e1bbf8ee2db.pdf Strong dependence on data Clearly a high quality financial database is necessary to run a credible quant research effort. Quant managers and investors alike should be aware of database limitations. For example, extreme data points: Quite often these points are entry errors of some sort. However, they could be valid data. Or backfilling of data: Toyota Motor Corp reported EPS for financial year 04/05 on 10 May 05. Many databases however will record the EPS number as of 31 March 05, the official financial year-end date. UQ
http://www.crsp.com/ There are a large number of quality data vendors out there. Thomson Reuters, etc... In terms of quantitative investing... well in my book it is all trading. I consider myself a quantitative trader and my hold times are minutes to hours. Occasionally no more than 3 days. The heart of the issue is portfolio and trade management. In my view, a solid quantitative approach will trade on a fairly large scale, i.e. taking dozens if not hundreds of trades that are well diversified across strategies and markets. The goal is to reduce any singular market/strategy risk without reducing returns... That said, the strategies themselves only function as parts of the portfolio, which is also managed quantitively. Mike
Thanks for the input. I think quant Trading is more (,if not all,) about timing of individual stock. Simply buy and sell within a year maximum. Making decisions seldom base on balance sheet data, disregarding any stock value or returns. I believe quant Investing is more about selecting among stocks. A stock could be bought and hold for longer than one year. Making decisons mostly is based on balance sheet data to determine a stock's value and returns. Quant trading basically would not take any balance sheet data into consideration. Most important primary data to determine timing decision would be only two: price and volume. The impact of trading risk is controlled only after selecting a stock. Quant investing mainly considers analysis of balance sheet data, which is published only several months once. There can be several tens of important factors and their data for evaluation to make decisions. Because of holding for long timeframe, measuring risk factors is critical before selecting a stock.
Where is the most popular forum of quantitative investing for stock picking? Q http://www.wilmott.com/index.cfm?NoCookies=Yes&forumid=1 Trading Forum Quantitative trading, algorithmic trading, black-box (as long as we can take a peek inside) trading, arbitrage, buy low sell high, everything but stock picks. UQ Quantitative Stock Selection http://faculty.fuqua.duke.edu/~charvey/Teaching/IntesaBci_2001/stockselection.pdf
Leave us (s)peculate a bit. I can trade off in my alcohol-soaked old brain perhaps six factors. An example is the numbers I consider when investing in a high dividend paying stock, which is my primary investment mode. A supercomputer presumably can consider hundreds of variables, if indeed that many exist for a given vehicle. Now let us guess how many dividend-conscious individual investors are active in a high volume stock. Like, say, COP, LINE, or SE among attractive energy stocks which I like. Tens of thousands, certainly. Hundreds of thousands, possibly. Now I will hazard a fair guess that those thousands of investors collectively are savvier than any fucking supercomputer. Because in the end analysis their considerations either drive the stock price up or down, which is really all you need to know anyway. But I am a neophobic old dog whose first computer was a sliderule. And I am embarrassed to admit that all I use my shiny shit-hot PC for is to distinguish up from down.
i am merely a completely fresh newbie, expecting to learn something never heard before myself. its like a high-tech approach of using statistical techniques (including a lot of high-power applied maths under this umbrella) to do quantification of sophisticated fundamental analysis plus modernised portfolio management and renewed technical analysis, in order to make better decisions, preferably using super-computers (don't forget the heuristic computational requirements), that are usually done by many ordinary discretional investors commonly do. once starting this project, i think very high chance i could continue to keep doing it in the heaven, so that i can have enough time (i.e. eternity) to finish it before I will die again. new love! great fun!
http://en.wikipedia.org/wiki/Renaissance_Technologies Q Renaissance Technologies is a hedge fund management company of over 300 employees and more than $15 billion in assets under management in three funds[2]. ... Renaissance employs many specialists with non-financial backgrounds, including mathematicians, physicists, astrophysicists and statisticians. About a third of the more than 200 employees at the East Setauket office have Ph.Ds.[6] ... For the 11 years ending in December 1999, Medallionâs cumulative returns were 2,478.6 percent. . UQ http://en.wikipedia.org/wiki/D._E._Shaw_&_Co. Q D. E. Shaw & Co., L.P. is a global investment[1] and technology development firm based in New York, New York whose activities center on many aspects of the intersection between technology and finance. ... The D. E. Shaw group is known for its quantitative investment strategies, particularly statistical arbitrage, and its rigorous recruiting policies, which especially target the math and science departments of major universities. Notable former employees include Jeff Bezos, who was a vice president at D. E. Shaw before departing to found Amazon.com, and Lawrence Summers. As of 2008, the D. E. Shaw group employs more than 1500 people.[10] Employment opportunities at D. E. Shaw are known to be extremely competitive, with only one applicant in several hundred being offered a position.[11] The firm is particularly known for its diverse hiring practices, generally disfavoring those from MBA programs. UQ http://en.wikipedia.org/wiki/Barclays_Global_Investors Q As of September 30, 2010, BlackRockâs assets under management total US$3.446 trillion across equity, fixed income, cash management, alternative investments, real estate, and advisory strategies. Through BlackRock Solutions, BlackRock offers risk management, strategic advisory, and enterprise investment system services to a broad base of clients with portfolios totaling approximately US$9 trillion. ... Headquartered in New York, BlackRock serves clients from offices in 24 countries, maintaining a major presence in North America, Europe, Asia-Pacific, and the Middle East. With approximately 8,400 employees, including more than 700 investment professionals worldwide. UQ http://www.linkedin.com/companies/numeric-investors Q Numeric Investors is an institutional investment manager based in Boston, Massachusetts. We manage assets for clients globally, including corporate and public pension plans, foundations, endowments, and sovereign funds. Since our founding in 1989, we have remained committed and focused on efforts to consistently outperform our benchmarks to deliver excess returns over the long term for our clients. Strategies range from long-only, 130/30 and market neutral equities across geographic regions, investment styles and capitalization strata. We are privately owned by several senior employees and a private equity partner. We are continually developing and enhancing innovative quantitative investment techniques based on fundamental investment principles. Our long-standing commitment to carefully managing capacity has enabled us to focus on delivering alpha to a select group of clients rather than growing assets. UQ http://en.wikipedia.org/wiki/Jeremy_Grantham Q Jeremy Grantham is an American investor and Chairman of the Board of Grantham Mayo Van Otterloo (GMO), a Boston-based asset management firm. GMO is one of the largest managers of such funds in the world, having more than US $107 billion under management as at December 2009. Grantham is regarded as a highly knowledgeable investor in various stock, bond, and commodity markets, and is particularly noted for his prediction of various bubbles. He has been a vocal critic of various governmental responses to the Global Financial Crisis.[1][2] Grantham started one of the world's first index funds in the early 1970s.[citation needed] Grantham's investment philosophy can be summarized by his commonly used phrase "reversion to the mean." Essentially he believes that all asset classes and markets will revert to mean historical levels from highs and lows. His firm seeks to understand historical changes in markets and predict results for seven years into the future. When there is deviation from historical means (averages) the firm may take an investment position based on a return to the mean. The firm allocates assets based on internal predictions of market direction.[3] UQ http://www.linkedin.com/companies/first-quadrant Q First Quadrant L.P. (FQ) is a privately owned investment manager with approximately $36 billion in assets under management. ... The firm invests in growth and value stocks of small-cap, mid-cap, and large-cap companies. It employs a top-down approach to select its sectors and a fundamental analysis with a bottom-up stock picking approach to make its equity investments. The firm also uses a currency management arbitrage, tactical asset allocation, policy allocation control, and long/short strategies to make its investments. It conducts in-house research to make its investments. UQ http://en.wikipedia.org/wiki/Robeco Q Year AuM (in ⬠m) 2009 134,900 ... The stocks managed by Robeco performed better than the benchmark over the period 2004-2006, beating the benchmark on average with 0.89%. However performance was weaker over 2006 than it was over 2004 and 2005. The bonds managed by Robeco performed below the benchmark, however. UQ
Even worse, for many of the variables/factors, a same factor can be used to serve two conflicting objectives. An example is book-to-value ratio provides totally opposite weighting to value-investors (preferring high ratio for a cheap bargain) against growth-investors (preferring low ratio for high growth potential).