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Quantitative Equity Portfolio Management An Active Approach to Portfolio Construction and Management

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ISBN-10: 0071459391

ISBN-13: 9780071459396

Edition: 2007

Authors: Ludwig B. Chincarini, Daehwan Kim

List price: $77.00
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Description:

Step-by-step strategies for maximizing alpha, a hot-button measure of portfolio performance Detailed mathematics and statistics are removed from text and placed in easily accessible appendices Accompanying CD contains practice exercises using actual historical stock data
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Book details

List price: $77.00
Copyright year: 2007
Publisher: McGraw-Hill Education
Publication date: 8/17/2006
Binding: Mixed Media
Pages: 658
Size: 6.40" wide x 9.30" long x 1.90" tall
Weight: 2.684

Foreword
Preface
Notations and Abbreviations
An Overview of QEPM
The Power of QEPM
Introduction
The Advantages of QEPM
Quantitative and Qualitative Approaches to Similar Investment Situations
A Tour of the Book
Conclusion
The Fundamentals of QEPM
Introduction
QEPM [alpha]
Benchmark [alpha]
CAPM [alpha]
Multifactor [alpha]
A Variety of [alpha]'s
Ex-Ante and Ex-Post [alpha]
Ex-Ante and Ex-Post Information Ratio
The Seven Tenets of QEPM
Tenets 1 and 2: Market Efficiency and QEPM
The Efficient-Market Hypothesis
Anomalies
Market Efficiency and QEPM
Tenets 3 and 4: The Fundamental Law, The Information Criterion, and QEPM
The Truth about the Fundamental Law
The Information Criterion
Information Loss
Tenets 5, 6, and 7: Statistical Issues in QEPM
Data Mining
Parameter Stability
Parameter Uncertainty
Conclusion
Basic QEPM Models
Introduction
Basic QEPM Models and Portfolio Construction Procedures
Factor Choice
The Data Decision
Factor Exposure
Factor Premium
Expected Return
Risk
Forecasting
Security Weighting
The Equivalence of the Basic Models
The Screening and Ranking of Stocks with the Z-Score
Hybrids of the Models and the Information Criterion
The Setup
The Z-Score Model
A Hybrid of the Z-Score Model and a Fundamental Factor Model
Information Loss
Choosing the Right Model
Consistency with Economic Theory
Ability to Combine Different Types of Factors
Ease of Implementation
Data Requirement
Intuitive Appeal
Conclusion
Portfolio Construction and Maintenance
Factors and Factor Choice
Introduction
Fundamental Factors
Valuation Factors
Solvency Factors
Operating Efficiency Factors
Operating Profitability Factors
Financial Risk Factors
Liquidity Factors
Technical Factors
Economic Factors
Alternative Factors
Analyst Factors
Corporate Finance Policy Factors
Social Responsibility Factors
Factor Choice
Univariate Regression Tests
Multiple Regression Tests
Unidimensional Zero-Investment Portfolio
Multidimensional Zero-Investment Portfolio
Techniques to Reduce the Number of Factors
Conclusion
Factor Definition Tables
Stock Screening and Ranking
Introduction
Sequential Stock Screening
Sequential Screens Based on Famous Strategies
Simultaneous Screening and the Aggregate Z-Score
The Z-Score
The Aggregate Z-Score
Ad Hoc Aggregate Z-Score
Optimal Aggregate Z-Score
Factor Groups and the Aggregate Z-Score
The Aggregate Z-Score and Expected Return
Expected Return Implied by the Z-Score
The Forecasting Rule of Thumb
The Equivalence between the Z-Score Model and the Fundamental Factor Model
The Aggregate Z-Score and the Multifactor [alpha]
Conclusion
A List of Stock Screens Based on Well-Known Strategies
On Outliers
Fundamental Factor Models
Introduction
Preliminary Work
Choosing Factors
Treatment of the Risk-Free Rate
Choosing the Time Interval and Time Period
Choosing the Universe of Stocks
Benchmark and [alpha]
Factor Exposure
The Factor Premium
OLS Estimator of the Factor Premium
Robustness Check
Outliers and MAD Estimator of Factor Premium
Heteroscedasticity and GLS Estimator of the Factor Premium
Decomposition of Risk
Conclusion
Economic Factor Models
Introduction
Preliminary Work
Benchmark and [alpha]
The Factor Premium
Factor Premium for Economic/Behavioral/Market Factors
Factor Premium for Fundamental/Technical/Analyst Factors
Factor Premium for Statistical Factors
Factor Exposure
The Standard Approach
When the Standard Approach Fails
Decomposition of Risk
The Standard Approach
When the Standard Approach Fails
Conclusion
Forecasting Factor Premiums and Exposures
Introduction
When Is Forecasting Necessary?
Combining External Forecasts
Model-Based Forecast
Econometric Forecast
Parameter Uncertainty
Forecasting the Stock Return
Conclusion
Portfolio Weights
Introduction
Ad Hoc Methods
Standard Mean-Variance Optimization
No Constraints
Short-Sale and Diversification Constraints
Sector or Industry Constraints
Trading-Volume Constraint
Risk-Adjusted Return
Benchmark
Ad Hoc Methods Again
Stratification
Factor-Exposure Targeting
Tracking-Error Minimization
Direct Computation
Tracking by Factor Exposure
Ghost Benchmark Tracking
Risk-Adjusted Tracking Error
Conclusion
Quadratic Programming
Quadratic Programming with Equality Constraints
A Numerical Example
Quadratic Programming with Inequality Constraints
A Numerical Example
Rebalancing and Transactions Costs
Introduction
The Rebalancing Decision
Rebalancing and Model Periodicity
Change in [alpha] and Other Parameters
Understanding Transactions Costs
Modeling Transactions Costs
Portfolio Construction with Transactions Costs
The Optimal Portfolio with Transactions Costs
The Tracking Portfolio with Transactions Costs
Dealing with Cash Flows
Reducing Transactions Cost Using Futures and ETFs
Rebalancing toward Optimal Target Weights
Conclusion
Approximate Solution to the Optimal Portfolio Problem
Tax Management
Introduction
Dividends, Capital Gains, and Capital Losses
Principles of Tax Management
Dividend Management
Tax-Lot Management
Tax-Lot Mathematics
Capital Gain and Loss Management
Loss Harvesting
Loss Harvesting and Reoptimizing
Loss Harvesting and Characteristic Matching
Loss Harvesting with a Benchmark
Gains from Tax Management
Conclusion
[alpha] Mojo
Leverage
Introduction
Cash and Index Futures
Theoretical Bounds of Leverage
Leverage Mechanics
Expected Return and Risk
Stocks, Cash, and Index Futures
Theoretical Limits to Leverage
Leverage Mechanics
Expected Returns and Risk
Stocks, Cash, and Single-Stock Futures
Theoretical Limits of Leverage
Leverage Mechanics
Expected Returns, Risk, and [alpha] Mojo
Stocks, Cash, Individual Stocks, and Single-Stock and Basket Swaps
Margining Individual Stocks
Single-Stock and Basket Swaps
Stocks, Cash, and Options
Rebalancing
Cash and Futures
Stocks, Cash, and Futures
Liquidity Buffering
Leveraged Short
Conclusion
Fair Value Computations
Derivation of Equations (12.19), (12.20), and (12.21)
Tables of Futures Leverage Multipliers to Achieve Various Degrees of Leverage
Market Neutral
Introduction
Market-Neutral Construction
Security Selection
Dollar Neutrality
Beta Neutrality (a.k.a Risk-Factor Neutrality)
Market-Neutral Portfolio Out of a Long-Only Portfolio
Market Neutral's Mojo
The Mechanics of Market Neutral
Margin and Shorting
The Margin and Market Neutral
Sources of the Return
The Benefits and Drawbacks of Market Neutral
Rebalancing
General Long-Short
Long-Short
Equitization
Portable [alpha]
Pair Trading
Conclusion
Bayesian [alpha]
Introduction
The Basics of Bayesian Theory
Bayesian [alpha] Mojo
Quantifying Qualitative Information
Quantifying a Stock Screen
Quantifying a Stock Ranking
Quantifying the Buy and Sell Recommendations
The Z-Score-Based Prior
Scenario-Based Priors
Posterior Computation
The Information Criterion and Bayesian [alpha]
Conclusion
Performance Analysis
Performance Measurement and Attribution
Introduction
Measuring Returns
No Cash Flows
Inflows and Outflows
Measuring Returns for Market Neutral and Leveraged Portfolios
Measuring Risk
Standard Deviation
Semi-Standard Deviation
Tracking Error
CAPM [Beta]
Value-at-Risk
Covariance and Correlation
Risk-Adjusted Performance Measurement
The Sharpe Ratio
The Information Ratio
The CAPM [alpha] and the Benchmark [alpha]
The Multifactor [alpha]
Practical Issues with Risk-Adjusted Measures
Performance Attribution
Classical Attribution
Multifactor QEPM Attribution
Conclusion
Style Analysis
Measures of Opportunity
Short Returns
Measuring Market Timing Ability
Practical Application
The Backtesting Process
Introduction
The Data and Software
The Time Period
The Investment Universe and the Benchmark
U.S. Equity Benchmarks
A Comparison of the Major U.S. Equity Benchmarks
The Most Popular Benchmarks and Our Benchmarks
The Factors
The Stock-Return and Risk Models
Parameter Stability and the Rebalancing Frequency
Variations on the Baseline Portfolio
Transactions Costs
Taxes
Leverage
Market Neutral
Conclusion
Factor Formulas
The Portfolios' Performance
Introduction
The Performance of the Baseline Portfolios
The Fundamental Factor Model Performance
The Aggregate Z-Score Model Performance
The Economic Factor Model Performance
Performance Reports for Distribution
Performance Attribution for the Economic Factor Baseline Model
The Transactions Cost-Managed Portfolio Performance
The Tax-Managed Portfolio Performance
The Leveraged Portfolio Performance
The Market-Neutral Portfolio Performance
Conclusion
Contents of the CD
Glossary
Bibliography
Index
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