Equity Management: Quantitative Analysis for Stock Selection

by Bruce I. Jacobs and Kenneth N. Levy

Table of Contents

Foreword: Harry M. Markowitz, Nobel Laureate

Introduction: Life on the Leading Edge

Part One: Selecting Securities

Chapter 1: The Complexity of the Stock Market

The Evolution of Investment Practice
Web of Return Regularities
Disentangling and Purifying Returns
Advantages of Disentangling
Evidence of Inefficiency
Value Modeling in an Inefficient Market
Risk Modeling versus Return Modeling
Pure Return Effects
Anomalous Pockets of Inefficiency
Empirical Return Regularities
Modeling Empirical Return Regularities
Bayesian Random Walk Forecasting

Chapter 2: Disentangling Equity Return Regularities: New Insights and Investment Opportunities

Previous Research
Return Regularities We Consider
    Methodology
The Results on Return Regularities
    P/E and Size Effects
    Yield, Neglect, Price, and Risk
    Trends and Reversals
    Some Implications
January versus Rest-of-Year Returns
Autocorrelations of Return Regularities
Return Regularities and Their Macroeconomic Linkages

Chapter 3: On the Value of 'Value'

Value and Equity Attributes
Market Psychology, Value, and Equity Attributes
    The Importance of Equity Attributes
Explaining the DDM
    Methodology
    Stability of Equity Attributes
Expected Returns
    Naïve Expected Returns
    Pure Expected Returns
Actual Returns
    Power of the DDM
    Power of Equity Attributes
Forecasting DDM Returns

Chapter 4: Calendar Anomalies: Abnormal Returns at Calendar Turning Points

The January Effect
    Rationales
The Turn-of-the-Month Effect
The Day-of-the-Week Effect
    Rationales
The Holiday Effect
The Time-of-Day Effect

Chapter 5: Forecasting the Size Effect

The Size Effect
    Size and Transaction Costs
    Size and Risk Measurement
    Size and Risk Premiums
    Size and Other Cross-Sectional Effects
    Size and Calendar Effects
Modeling the Size Effect
    Simple Extrapolation Techniques
    Time-Series Techniques
    Transfer Functions
    Vector Time-Series Models
    Structural Macroeconomic Models
    Bayesian Vector Time-Series Models

Chapter 6: Earnings Estimates, Predictor Specification, and Measurement Error

Predictor Specification and Measurement Error
    Alternative Specifications of E/P and Earnings Trend for Screening
    Alternative Specifications of E/P and Trend for Modeling Returns
Predictor Specification with Missing Values
Predictor Specification and Analyst Coverage
    The Return-Predictor Relationship and Analyst Coverage

Part Two: Managing portfolios

Chapter 7: Engineering Portfolios: A Unified Approach

Is the Market Segmented or Unified?
A Unified Model
A Common Evaluation Framework
Portfolio Construction and Evaluation
Engineering "Benchmark" Strategies
Added Flexibility
Economies

Chapter 8: The Law of One Alpha

Chapter 9: Residual Risk: How Much Is Too Much?

Beyond the Curtain
Some Implications

Chapter 10: High-Definition Style Rotation

High-Definition Style Rotation
    Pure Style Returns
    Implications
High-Definition Management
Benefits of High-Definition Style

Part Three: Expanding Opportunities

Chapter 11: Long-Short Equity Investing

Long-Short Equity Strategies
Societal Advantages of Short-Selling
Equilibrium Models, Short-Selling, and Security Prices
Practical Benefits of Long-Short Investing
Portfolio Payoff Patterns
Long-Short Mechanics and Returns
Theoretical Tracking Error
Advantages of the Market-Neutral Strategy over Long Manager plus Short Manager
Advantages of the Equitized Strategy over Traditional Long Equity Management
Implementation of Long-Short Strategies: Quantitative versus Judgmental
Implementation of Long-Short Strategies: Portfolio Construction Alternatives
Practical Issues and Concerns
    Shorting Concerns
    Trading Concerns
    Custody Issues
    Legal Issues
    Morality Issues
What Asset Class Is Long-Short?

Chapter 12: 20 Myths about Long-Short

Chapter 13: The Long and Short on Long-Short

Building a Market-Neutral Portfolio
A Question of Efficiency
Benefits of Long-Short
Equitizing Long-Short
Trading Long-Short
Evaluating Long-Short

Chapter 14: Long-Short Portfolio Management: An Integrated Approach

Long-Short: Benefits and Costs
    The Real Benefits of Long-Short
    Costs: Perception versus Reality
The Optimal Portfolio
    Neutral Portfolios
    Optimal Equitization

Chapter 15: Alpha Transport with Derivatives