Fundamental Signals Strategy -...
Transcript of Fundamental Signals Strategy -...
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Fundamental Signals Strategy Daniel Cohn, Chase Navellier, Thomas Rogers
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Background
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The Fundamental Quality Anomaly
Quality Minus Junk Asness, Frazzini, Pedersen (2013)
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The Excess Returns of “Quality” Stocks: A Behavioral Anomaly Bouchaud, Cilberti, Landier, Simon, Thesmar (2016)
The Fundamental Quality Anomaly
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The Excess Returns of “Quality” Stocks: A Behavioral Anomaly Bouchaud, Cilberti, Landier, Simon, Thesmar (2016)
The Fundamental Quality Anomaly
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Defining “Quality”
Profitability/Growth Safety Payout
GPOA BAB EISS
ROE IVOL
DISS
ROA LEV
NPOP
CFOA O-Score
GMAR Z-Score
ACC EVOL
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Quantitative Warren Buffet: Quality at a Reasonable Price (QARP)
• Quality–Valuevs.Quality/Value• Thereturnofqualitystocksvariesovertimewithveryhighcorrelationtothe“qualitypremium”paid
• Sharperatiosof0.7and0.9fortheUSandGlobalstockuniverseswereachievedusingQARP
• Howtodefinevalue?
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Our Project
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Research Dataset
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The Quality Anomaly Illustrated
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End Goals
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Finding the Best QARP Signal
• Exploringspecificqualityandvaluefundamentalsthataremostpredictiveofhighreturns(highregressioncoefficientandhighR2)
• Combiningthemtocreatethemostpowerfuloverallsignal
Howtoimproveindividualandcategoryweighting?
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Finding the Right Quality Metrics
Profitability/Growth Safety Payout
GPOA BAB EISS
ROE IVOL
DISS
ROA LEV
NPOP
CFOA O-Score
GMAR Z-Score
ACC EVOL
andmanymore…
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Portfolio Construction
• Portfoliocanbemademarket-neutral,equalpartslongandshort,orlong-only
• Benchmarkofcomparisonwillvarydependingonthischoice
• Sincequalitypredictsoutperformance,weplantocreateaweighted-averageportfoliobasedonourQARPsignal
Quantopianbacktestingpipeline
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Separating Based on Industry
• Fundamentalsalsopossesssignificantvariabilityamongindustries
• Increasedgranularityshouldincreasethesignalpowersolongaswemaintainasignificantsamplesize
• Portfoliooptimizationamongstindustryweightingswouldthenyieldasuperiorresult