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Equity Valuation and Portfolio Management

Book Description

A detailed look at equity valuation and portfolio management

Equity valuation is a method of valuing stock prices using fundamental analysis to determine the worth of the business and discover investment opportunities.

In Equity Valuation and Portfolio Management Frank J. Fabozzi and Harry M. Markowitz explain the process of equity valuation, provide the necessary mathematical background, and discuss classic and new portfolio strategies for investment managers. Divided into two comprehensive parts, this reliable resource focuses on valuation and portfolio strategies related to equities.

  • Discusses both fundamental and new techniques for valuation and strategies

  • Fabozzi and Markowitz are experts in the fields of investment management and economics

  • Includes end of chapter bullet point summaries, key chapter take-aways, and study questions

Filled with in-depth insights and practical advice, Equity Valuation and Portfolio Management will put you in a better position to excel at this challenging endeavor.

The ebook version does not provide access to the companion files.

Table of Contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Contents
  5. Preface
  6. About the Editors
  7. Contributing Authors
  8. CHAPTER 1: An Introduction to Quantitative Equity Investing
    1. EQUITY INVESTING
    2. FUNDAMENTAL VS. QUANTITATIVE INVESTOR
    3. THE QUANTITATIVE STOCK SELECTION MODEL
    4. THE OVERALL QUANTITATIVE INVESTMENT PROCESS
    5. RESEARCH
    6. PORTFOLIO CONSTRUCTION
    7. MONITORING
    8. CURRENT TRENDS
    9. KEY POINTS
    10. QUESTIONS
  9. CHAPTER 2: Equity Analysis Using Traditional and Value-Based Metrics
    1. OVERVIEW OF TRADITIONAL METRICS
    2. PRICE MULTIPLES
    3. FUNDAMENTAL STOCK RETURN
    4. TRADITIONAL CAVEATS
    5. OVERVIEW OF VALUE-BASED METRICS
    6. KEY POINTS
    7. APPENDIX: CASE STUDY
    8. QUESTIONS
  10. CHAPTER 3: A Franchise Factor Approach to Modeling P/E Orbits
    1. BACKGROUND
    2. HISTORICAL DATA OBSERVATIONS
    3. FORMULATION OF THE BASIC MODEL
    4. P/E MYOPIA: THE FALLACY OF A STABLE P/E
    5. TWO-PHASE P/E ORBITS
    6. FRANCHISE VALUATION UNDER Q-TYPE COMPETITION
    7. FRANCHISE LABOR
    8. KEY POINTS
    9. QUESTIONS
  11. CHAPTER 4: Relative Valuation Methods for Equity Analysis
    1. BASIC PRINCIPLES OF RELATIVE VALUATION
    2. HYPOTHETICAL EXAMPLE
    3. KEY POINTS
    4. QUESTIONS
  12. CHAPTER 5: Valuation over the Cycle and the Distribution of Returns *
    1. THE LINK BETWEEN EARNINGS AND RETURNS
    2. THE PHASES CAN BE INTERPRETED IN RELATIONSHIP TO THE ECONOMY
    3. ASSET CLASS PERFORMANCE VARIES ACROSS THE PHASES
    4. INCORPORATING CYCLICALITY INTO VALUATIONS
    5. APPENDIX: DATES AND RETURNS OF THE PHASES
    6. KEY POINTS
    7. QUESTIONS
  13. CHAPTER 6: An Architecture for Equity Portfolio Management
    1. ARCHITECTURAL BUILDING BLOCKS
    2. TRADITIONAL ACTIVE MANAGEMENT
    3. PASSIVE MANAGEMENT
    4. ENGINEERED MANAGEMENT
    5. EXPANDING OPPORTUNITIES
    6. THE RISK-RETURN CONTINUUM
    7. THE ULTIMATE OBJECTIVE
    8. KEY POINTS
    9. QUESTIONS
  14. CHAPTER 7: Equity Analysis in a Complex Market
    1. AN INTEGRATED APPROACH TO A SEGMENTED MARKET
    2. DISENTANGLING
    3. CONSTRUCTING, TRADING, AND EVALUATING PORTFOLIOS
    4. PROFITING FROM COMPLEXITY
    5. KEY POINTS
    6. QUESTIONS
  15. CHAPTER 8: Survey Studies of the Use of Quantitative Equity Management
    1. 2003 INTERTEK EUROPEAN STUDY
    2. 2006 INTERTEK STUDY
    3. 2007 INTERTEK STUDY
    4. CHALLENGES FOR QUANTITATIVE EQUITY INVESTING
    5. MODELING AFTER THE 2007–2009 GLOBAL FINANCIAL CRISIS
    6. KEY POINTS
    7. QUESTIONS
  16. CHAPTER 9: Implementable Quantitative Equity Research *
    1. THE RISE OF ECONOPHYSICS
    2. A GENERAL FRAMEWORK
    3. SELECT A SAMPLE FREE FROM SURVIVORSHIP BIAS
    4. SELECT A METHODOLOGY TO ESTIMATE THE MODEL
    5. RISK CONTROL
    6. KEY POINTS
    7. QUESTIONS
  17. CHAPTER 10: Tracking Error and Common Stock Portfolio Management
    1. DEFINITION OF TRACKING ERROR
    2. COMPONENTS OF TRACKING ERROR
    3. FORWARD-LOOKING VS. BACKWARD-LOOKING TRACKING ERROR
    4. INFORMATION RATIO
    5. DETERMINANTS OF TRACKING ERROR
    6. MARGINAL CONTRIBUTION TO TRACKING ERROR
    7. KEY POINTS
    8. QUESTIONS
  18. CHAPTER 11: Factor-Based Equity Portfolio Construction and Analysis
    1. FACTOR-BASED TRADING
    2. DEVELOPING FACTOR-BASED TRADING STRATEGIES
    3. RISK TO TRADING STRATEGIES
    4. DESIRABLE PROPERTIES OF FACTORS
    5. SOURCES FOR FACTORS
    6. BUILDING FACTORS FROM COMPANY CHARACTERISTICS
    7. WORKING WITH DATA
    8. ANALYSIS OF FACTOR DATA
    9. KEY POINTS
    10. QUESTIONS
  19. CHAPTER 12: Cross-Sectional Factor-Based Models and Trading Strategies
    1. CROSS-SECTIONAL METHODS FOR EVALUATION OF FACTOR PREMIUMS
    2. FACTOR MODELS
    3. PERFORMANCE EVALUATION OF FACTORS
    4. MODEL CONSTRUCTION METHODOLOGIES FOR A FACTOR-BASED TRADING STRATEGY
    5. BACKTESTING
    6. BACKTESTING OUR FACTOR TRADING STRATEGY
    7. KEY POINTS
    8. APPENDIX: THE COMPUSTAT POINT-IN-TIME, IBES CONSENSUS DATABASES AND FACTOR DEFINITIONS
    9. QUESTIONS
  20. CHAPTER 13: Multifactor Equity Risk Models and Their Applications *
    1. MOTIVATION
    2. EQUITY RISK FACTOR MODELS
    3. APPLICATIONS OF EQUITY RISK MODELS
    4. KEY POINTS
    5. QUESTIONS
  21. CHAPTER 14: Dynamic Factor Approaches to Equity Portfolio Management
    1. METHODS OF ACTIVE MANAGEMENT
    2. MODELING
    3. IMPLEMENTATION
    4. KEY POINTS
    5. QUESTIONS
  22. CHAPTER 15: A Factor Competition Approach to Stock Selection
    1. THE PROBLEM
    2. THE SOLUTION
    3. WHICH FACTORS GET PICKED?
    4. DOES THE ALPHA REPAIR PROCESS WORK?
    5. KEY POINTS
    6. QUESTIONS
  23. CHAPTER 16: Avoiding Unintended Country Bets in Global Equity Portfolios *
    1. COUNTRY MEMBERSHIP AND INDIVIDUAL STOCK RETURNS
    2. WAYS TO BUILD ACTIVE GLOBAL PORTFOLIOS
    3. STUDYING THE NAIVE PORTFOLIO
    4. EMPIRICAL RESULTS
    5. WHY DOES THE NAIVE STOCK SELECTION PORTFOLIO MAKE COUNTRY NOISE BETS?
    6. KEY POINTS
    7. QUESTIONS
  24. CHAPTER 17: Modeling Market Impact Costs
    1. MARKET IMPACT COSTS
    2. LIQUIDITY AND TRANSACTION COSTS
    3. MARKET IMPACT MEASUREMENTS AND EMPIRICAL FINDINGS
    4. FORECASTING AND MODELING MARKET IMPACT
    5. KEY POINTS
    6. QUESTIONS
  25. CHAPTER 18: Equity Portfolio Selection in Practice
    1. PORTFOLIO CONSTRAINTS COMMONLY USED IN PRACTICE
    2. BENCHMARK EXPOSURE AND TRACKING ERROR MINIMIZATION
    3. INCORPORATING TRANSACTION COSTS
    4. INCORPORATING TAXES
    5. MULTI-ACCOUNT OPTIMIZATION
    6. ROBUST PARAMETER ESTIMATION
    7. PORTFOLIO RESAMPLING
    8. ROBUST PORTFOLIO OPTIMIZATION
    9. KEY POINTS
    10. QUESTIONS
  26. CHAPTER 19: Portfolio Construction and Extreme Risk
    1. MEASURES OF EXTREME LOSS
    2. CONSTRAINING SHORTFALL
    3. PERFORMANCE
    4. IMPOSING BENCHMARK NEUTRALITY
    5. ANALYSIS
    6. KEY POINTS
    7. APPENDIX: CONSTRUCTING OUT-OF-SAMPLE SHORTFALL BETAS
    8. QUESTIONS
  27. CHAPTER 20: Working with High-Frequency Data
    1. WHAT IS HIGH-FREQUENCY DATA?
    2. HOW IS HIGH-FREQUENCY DATA RECORDED?
    3. PROPERTIES OF HIGH-FREQUENCY DATA
    4. HIGH-FREQUENCY DATA ARE VOLUMINOUS
    5. HIGH-FREQUENCY DATA ARE SUBJECT TO BID-ASK BOUNCE
    6. HIGH-FREQUENCY DATA ARE IRREGULARLY SPACED IN TIME
    7. EQUITY CORRELATIONS DECAY AT HIGH FREQUENCIES
    8. KEY POINTS
    9. QUESTIONS
  28. CHAPTER 21: Statistical Arbitrage
    1. PAIRS TRADING
    2. GENERAL MODELS
    3. KEY POINTS
    4. QUESTIONS
  29. About the Web Site
  30. Index