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author Philip Vanstraceele - October 8, 2012

Over the course of the last decades, the analysis of structural reasons for equity out- or underperformance has been a widely discusses academic topic. New explanatory factors, such as accruals (Sloan, 1996), were established and former explanatory factors lost some of their predictive power, as Fama and French (2003) show in the case of beta.

One of the more recent explanatory factors is the F-Score (Piotroski, 2000), which has strong practical utility in separating winners from losers in the value segment of the market. In his paper, our friend Jan Mohr provides evidence on the utility of F-Score in the growth segment of the market. This study was done in collaboration with MFIE...[more]

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author Fraser Dawson - September 29, 2012

In response to many questions from the Short Selling Blog:

Short Algorithm

The screen that featured in the article can be described as follows:

US companies with market capitalisation greater than one billion dollars and with 20 day average trading volume greater than 100,000 shares. These companies are less volatile than their smaller brethren and much more likely to be borrowable. ADRs are excluded. This gives a typical starting universe of about 1700 large, liquid US-based companies.

Then a 5 year earnings yield (EY5) is found for each...[more]

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author Fraser Dawson - September 25, 2012

Why Bother?

Many professionals sell short a stock in order to make a profit just as they do with their long portfolios. However, that is not the primary focus of our short portfolio.

Because the market (eg a long tracker) gives you 6+% per annum (if you stay in it long enough), a short portfolio has to generate 6+% excess return just to break even. And that is not including trading expenses, which are greater for short selling than normal long trading. That is quite a headwind to sail against!

On the plus side, because most equity investors are long only, there may be more mispricing opportunities to take advantage of...[more]

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author Philip Vanstraceele - September 17, 2012

As a quantitative value investor, I‘ve always struggled with the question how long I should keep stocks in my portfolio and when I should sell these securities. Portfolio rebalancing is an important part of sticking to my game plan as a quantitative investor.

The prospect theory in behavioral finance, says that people make decisions based on the potential value of losses and gains rather than the final outcome, and that people value gains and losses differently.

Quantitative value investors generate alpha from process: with our systematic approach at MFIE, we avoid this problem by following a strict timetable process. We buy equities and selling them after one year...[more]

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