One might reasonably forecast that dynamic factor-timing strategies will be a growth area for the quantitative equity field.At the root of disciplined, modern investment processes are two things: risk and return.
The Eleven Thousand Rods Plus Any DividendThe notion of total return is obviousprice appreciation plus any dividend payments. In most quantitative approaches, risk is viewed as more akin to a roulette wheel; that is, the possible outcomes are well specified and the likelihood of each outcome is known, but in advance, an investor does not know which outcome will be realized.In this piece, we curate the history of quantitative equity investing, which traces its origins to the development of portfolio theory and the capital asset pricing model (CAPM). In particular, the expected return of a risky asset depends only on the risk of that asset as measured by its beta, a covariance measure of risk. In this paradigm, all investors hold the same risky portfolio, the market portfolio of risky assets that maximizes the Sharpe ratio. Researchers discovered that variables other than beta could explain the cross section of expected returns. Quantitative Management Pdf In particular, size and value were found to contain useful explanatory power. By the 1990s, the anomalies morphed into the mainstream as the anomalies were re-labeled as factors, and the benchmark model, at least in academic research, was a three-factor model with beta, size, and value. Attack of the Y2K Bug Screensaver,Y2K Bug,comical,cartoon,representation. Watch the bug as he wreaks havoc on your desktop, slicing, dicing, and chopping it to pieces. This is a great screen saver which shows the Y2K bug wreaking havoc on your. Download Attack of the Y2K Bug (2.2 MB). Attack of the y2k bug screensaver. Concurrent with the three-factor model, other credible factors muscled their way into the credible empirical asset pricing world, including momentum, liquidity, quality, and volatility. Indeed, in 2011, the president of the American Finance Association described the proliferation of factors as a zoo of new factors. Recent work suggests using a much higher standard to accept new factors.With diminishing acceptance of the view that capitalization-weighted indexes are optimal for all investors, factor investing has taken off in practice. Morningstar reported that factor investing is the fastest-growing segment of the investment management marketplace. Investors have recognized that low-cost exposure to other factors might give them superior riskreturn trade-offs.Of course, active investors are still looking for ways to improve performance over more-passive smart beta indexes. In this race, big data approaches offer the potential to grab an insight before it becomes widely known. Another promising avenue is the ability to dynamically adjust allocations to different factors based on the macroeconomic environment and investment conditions. Active managers are also exploring better ways to construct portfolios.In short, quantitative equity management is alive and well and intellectually active as investors seek to better manage risk and return. Commercially, factor investing has taken off in the form of smart beta. Products and strategies, vetted by decades of prior and current research, are continually being developed.
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