Synopsis:
Active Equity Management provides a comprehensive understanding of technical, fundamental, and economic signals used in equities trading. It explores in detail how such signals may be created, rigorously tested and successfully implemented. Filled with practitioner insights derived from years of experience in the hedge fund industry, and supported with academic theory, Active Equity Management provides an in-depth review of basic financial concepts, examines data sources useful for equities trading, and delves into popular seasonal effects and market indicators. It also highlights best practices in model development, portfolio construction, risk management, and execution. In combining topical thinking with the latest trends, research, and quantitative frameworks, Active Equity Management will help both the novice and the veteran practitioner understand the exciting world of equities trading.
* Covers extensive data sources to build investing information, insight and conviction edges * Examines seasonal effects, explores economic & market indicators to make better trading decisions* Addresses technical and fundamental signal construction and testing * Explains dynamic factor timing strategies, portfolio construction and management * Reviews standard approaches for trade-level and portfolio-level performance measurement * Discusses implementation, trading cost analysis and turnover management
From the Author:
Active equity management has been well studied over the past decade and a reasonable body of literature now exists on this topic. However, most of the literature tilts towards theory rather than practice. Surprisingly few practical guides exist for accessing the benefits of active management. Recognizing the need we have written this book to bridge the gap between theory and practice for investment professionals, researchers, active investors, and students. It is intended for readers who have knowledge of finance theory and markets but want to delve deeper to enhance their understanding of equity investing.
As equity markets have evolved, the pursuit of skill-based returns (alpha) has been no easy task. Our goal is to introduce readers to market inefficiencies and examine the theoretical and practical background of active investing. Drawn from academic research, financial literature and our own practitioner insights, we discuss a wide variety of seasonal effects, economic and market indicators, as well as technical and fundamental signals that may be used to create profitable risk-controlled trades.
We showcase methods to extract signals from disparate information sources and rigorously test the signals using scientific methods. By providing relevant practical illustrative examples, some historical and others hypothetical, we clarify important concepts for discerning readers. We also provide the building blocks to assist active investors improve their general understanding of the equities market, better recognize both technical and fundamental investing signals, derive an information edge and independently arrive at new insights to interpret and act on market indicators. Armed with the necessary building blocks for actively investing in equities, we go on to further draw attention to important issues surrounding forecasting, dynamic signal timing, portfolio construction and optimization, risk control, while successfully managing implementation and trading costs.
Besides covering long/short equity strategies in great detail, we survey statistical arbitrage, risk parity, commodities, and currency trading to extend the active equity management framework to other investment strategies.
While some approaches outlined in this book are quantitative in nature, this book goes beyond demonstrating the efficacy of the quantitative methods. Rather, we focus on the intuition behind the methods. Those with knowledge of statistics will enjoy delving deeper into the mathematical and modeling sections, while others may skim the technical detail without loss of comprehension.
We thank our current and former colleagues, those in academia whose work we have built upon, and are grateful to the many friends who have spent invaluable hours reviewing this book.
We hope you enjoy reading this book!
Xinfeng Zhou and Sameer Jain
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