You are previewing Principles of Quantitative Equity Investing: A Complete Guide to Creating, Evaluating, and Implementing Trading Strategies.
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Principles of Quantitative Equity Investing: A Complete Guide to Creating, Evaluating, and Implementing Trading Strategies

Book Description

In Principles of Quantitative Equity Investing, pioneering financial researcher Dr. Sugata Ray demonstrates how to invest successfully in US equities with quantitative strategies, using rigorous rule sets to decide when and what to trade.

Whether you’re a serious investor, professional advisor, or student of finance, Ray will help you determine the optimal quantitative rules for your investing objectives, and then "backtest" their performance through any historical time period. He demonstrates each key technique using state-of-the-art Equities Lab software — and this book comes with 20 weeks of free access to Equities Lab, plus a discount on its purchase.

Ray covers key topics including stock screening, portfolio rebalancing, market timing, returns and dividends, benchmarks, bespoke measures, and more. He also presents a series of powerful screens built by many of the world’s most successful investors.

Together, this guidebook and software combine to offer a turnkey solution for creating virtually any quantitative strategy, and then accurately estimating its performance and risk characteristics — helping you systematically maximize your profits and control your risk.

Table of Contents

  1. About This eBook
  2. Title Page
  3. Copyrigth Page
  4. Dedication Page
  5. Contents
  6. Acknowledgments
  7. About the Author
  8. Preface
    1. What This Book Is About (and Not About) and Who It Is For (and Not For)
    2. Concrete Scenarios of Readers Who Would Find This Book Useful
    3. Individual Investors Who Are Relatively New to Investing
    4. Individual Investors Who Have Invested in Equities Before But Are Not Professionals or Semiprofessionals at Investing
    5. Involuntary Investors Who Receive a Cash Windfall
    6. Investors and Investment Advisors Who Invest Mainly in Mutual Funds and ETFs
    7. Investors and Investment Advisors Who Invest in Individual Stock Picks
    8. Investors and Investment Advisors Who Already Have a Quantitative Strategy in Place
    9. Finally, a Note for Investors Who Have a Legacy Account
    10. Student Scenarios
    11. The Finance Student
    12. The Technical Student
    13. Bon Voyage
    14. Endnotes
  9. 1. Overview of Quantitative Investing
    1. Screens
      1. Horizons (or Rebalancing Frequency)
    2. Backtesting
    3. Implementation
    4. Endnotes
  10. 2. What You Need to Start Investing Using Quantitative Techniques
    1. Money
    2. Time
      1. Labor Time
      2. Investment Time
    3. A Base Level of Interest, Intelligence, and Computer Literacy
    4. A Brokerage Account
    5. A Computer
    6. Data and Software
      1. Stock Screeners
      2. Backtesting
      3. Information for the Stock Deep Dive
      4. Stock News
    7. A Data and Software 2-in-1: Equities Lab
    8. Getting an Equities Lab Account and Logging In
    9. Creating Your First Screen
      1. Results Explained
      2. Backtesting
    10. Endnotes
  11. 3. Creating a Screen—The Nuts and Bolts of Choosing a Quantitative Investing Strategy
    1. Investing Goals and Linking Them to Screens
    2. Aimless Screens
    3. The Problem with Building Strategies Solely to Outperform in Backtests
    4. Examples of Screener Construction
      1. Value Screener
      2. Momentum Screener
      3. Dividend Yield Screener
      4. A Real-Life Screener
      5. The Restrictions Tab
    5. Diversification
      1. Diversification across Industry, Market Cap, and So Forth
    6. Endnotes
  12. 4. For the Deeper Divers among Us: How to Use Quantitative Strategies to Enhance Fundamental Valuations
    1. Case Study #1: Helping Dad
    2. Case Study #2: Integrating with a Fundamental Fund [Exact Details Changed to Maintain Confidentiality]
    3. Overall Thoughts on Merging Deep Stock Analysis and Quantitative Techniques
  13. 5. Market Timing—Getting In and Out at the Right Time
    1. Market Timing Based on Value
    2. Other Market Timing Strategies, or the Wonder of Quandl Data
    3. Why Market Timing Strategies Are Easier to Overfit Than Stock Screening Strategies
    4. Endnotes
  14. 6. Technical Analysis for Quants
    1. Creating a Technical Screener
    2. Fragility
    3. Momentum—The One Exception to Skepticism Regarding Technical Analysis
    4. Endnotes
  15. 7. How to Measure Performance
    1. Benchmarks
    2. Standard Deviation
    3. Alphas
    4. Other Measures of Interest
    5. The Results Summary Tab
    6. Endnotes
  16. 8. Rebalancing—Why, How, and How Often
    1. Costs of Rebalancing More Frequently
      1. Financial Costs
      2. Labor Costs
      3. Minimizing Labor and Transaction Costs
    2. Endnotes
  17. 9. Weights—Equal or Otherwise
    1. Market Capitalization Weights
    2. Fundamental-Based Weights
    3. Endnotes
  18. 10. Some Powerful Screens
    1. Piotroski F-Score
    2. The Magic Formula
    3. The Value-Momentum Combo
      1. How to Combine Multiple Criteria in a Single Screen
    4. A Defensive Screen
    5. A “Good Enough” Value Screener
    6. Endnotes
  19. 11. Where to Get Ideas for New Screens
    1. Understanding an Academic Article in Financial Journals
    2. Where to Find Academic Finance Articles
    3. Other Sources of Ideas
    4. Endnotes
  20. 12. Troubleshooting
    1. What Are “Wrong” Backtest Results/Screen Results?
    2. Coding Errors
    3. Your Prior Belief Is Wrong
  21. 13. Behavioral Biases Avoided by Investing Quantitatively
    1. Recency Bias
    2. Confirmation Bias
    3. Source Amnesia Bias
    4. Overconfidence Bias
    5. Disposition Effect and Loss Aversion Bias
    6. How Quantitative Investing Avoids Some of These Biases and the Biases That Remain
    7. Endnotes
  22. 14. How Do You Actually Make Money Now? A Brief Guide to Implementation
    1. First Steps to Implementation
    2. The Brokerage Account
      1. Motif Investing
      2. Interactive Brokers
      3. Discount Brokerages
      4. Full-Service Brokerages
    3. Quantitative Investing If You Are Limited to ETFs and Mutual Funds
    4. Will My Strategy Make Me as Much Money as My Backtests Suggest?
    5. Role of Quantitative Equity Investing in Overall Wealth Management
    6. Endnotes
  23. 15. Alternative Tools for Quantitative Investing
    1. Comparing Equities Lab to Other Analysis Platforms (With Contributions from Henry Crutcher, Founder and CEO of Equities Lab)
      1. Bloomberg
      2. Compustat/Capital IQ
      3. YCharts
      4. Portfolio123
      5. Stock Investor Pro
      6. VectorVest
      8. Stock Rover
      9. Finviz
      10. Newsletters
    2. Endnotes
  24. 16. Why Does Quantitative Investing Work?
    1. The Case Against Quantitative Investing
    2. Why It Still Works
      1. Fair Reward for Additional Risk
      2. Behavioral Explanations
      3. Rewards for Making Markets Efficient
    3. What If My Quantitative Strategy Stops Working?
    4. Endnotes
  25. 17. Quantitative Investing in the Markets Today
    1. A Brief History of Quantitative Investing
    2. How Can You Compete Against Billion-Dollar Hedge Fund Behemoths?
    3. Endnotes
  26. 18. Godspeed
  27. Bibliography
  28. Index