Campbell R. Harvey,
Spring Term 4, 2005
Fuqua School of Business, Duke University, Durham, NC USA
National Bureau of Economic Research, Cambridge, MA USA
There has been a large growth in 'Alternative Investing' recently. Indeed, institutional investors routinely invest up 20% of their funds in alternative vehicles such as hedge funds. However, there is an important gap in the top MBA programs' curricula and the practice of investing. There is little or no mention of this important asset class in the standard textbooks.
The goal of the course is to bridge the theory of finance with the practice of finance in the area of stock selection. The course is very practically oriented, with students gaining hands-on experience in developing portfolios of stocks destined for a buy portfolio as well as stocks designated for short selling. While the course will examine the theoretical and empirical foundations of many different styles of alternative investing, most of the focus will be on the classic 'Long-Short'.
An important tool that the course will be employing is FACTSET's Alphatester. FACTSET is the premier tool for stock selection research. FACTSET is both a database of databases and a front-end program. In a few lines of script, students can sort through thousands of securities and forming portfolios based on attributes they consider important. Most top asset management firms have access to FACTSET. Through a special arrangement with FACTSET, and a generous grant from Duke's Global Capital Markets Center, FACTSET will be delivered to Duke students for the first time. Currently, Duke is the only top business school with access to FACTSET. We currently have three ports.
Another important ingredient is having the best data. The school already has access to databases such as Compustat and Worldscope, but for stock selection earnings forecasts are critical. Again, the Global Capital Markets Center has agreed to provide half the funding for I/B/E/S. This is a "special deal" in that students will receive the "real time" version of I/B/E/S - not the educational version.
While much of the course will be devoted to developing portfolio strategies, the key insight of the course is how to think about risk in the context of the theory of finance. Students will spend a considerable amount of time examining different risk models and whether we can explain the performance of the stock selection strategies in the context of risk, information advantage, or market inefficiency.
The Fuqua Honor Code is maintained in this course.
Finally, to do well in this course, you must be willing to set aside time. Assume you will spend 10 hours outside of the class time.
Copy to student drive, and into the subdirectory created for your project materials.
They will be posted to a space in my web structure for future reference. Importantly, I
am not looking for a regurgitation of old ideas or the popular press. I am looking for
some innovative ideas supplemented with empirical analysis.
All students are expected to attend the presentations in the last week. You must email me if you cannot attend the presentations.
Course overview.
Review of recent economic data. Review FINANCE 453 Assignment 5. Course goals and deliverables.
Robert is a Portfolio Manager in Institutional Equity Group.
He manages developed international (Europe + Asia) portfolios.
Investment style is core approach utilizing proprietary fundamental and
quantitative research. Focus on bottom-up stock selection. He will talk about low-tracking error selection. FMR manages $750 billion.
Course overview.
Review of recent economic data. Indepth analysis is leading univariate screens.
Andrew received his B.S. with honors in physics from the
California Institute of Technology in 1983, and his Ph.D. in general
relativity from the University of Texas at Austin in 1989. He subsequently
was a postdoctoral research fellow in astrophysics at Waseda University in
Japan for two years. In 1992 he started work at the Jet Propulsion
Laboratory pursuing research into the visualization and analysis of large
scientific data sets. The software that resulted, LinkWinds, was selected as
winner of the 1996 NASA Software of the Year Award. Andrew joined the
research group at First Quadrant in 1997, and is currently a Director,
managing the firm's Small and Mid Cap equity products. His work includes
modeling stock returns and asset allocation, estimating and analyzing
transaction costs, developing analysis software, and investigating tax
efficient investment strategies. He has published numerous articles in
taxable investing, as well as scientific visualization and general
relativity.
Combining Factors.
Review of recent economic data. Multivariate screening techniques.
Peter is a senior member of the Global Quantitative Equity Research team conducting research on fundamental-based quantitative investment strategies. Peter joined GSAM in September 2004. Previously he was a senior vice president and director of equity risk management at ING Investment Management, and director of quantitative equity research at its predecessor firm Aeltus Investment Management. He has also held senior quantitative research positions at First Quadrant and Asset Strategy. Peter began his investment career as a faculty member at the Marshall School of Business at the University of Southern California.
Peter received a A.B. in mathematics and economics from the University of Illinois, where he was elected to Phi Beta Kappa, and M.A. and Ph.D. degrees in economics from the University of California, Los Angeles. He has previously served as President of the Los Angeles Quantitative Investment Association.
Time varying factor loadings which depend on economic conditions.
Review of recent economic data. Methods for time-varying factor weights.
Greg McMurran is responsible for management and oversight of the implementation of the firm’s investment strategies. He is a major contributor to the firm’s ongoing research efforts as well as new product development and strategy applications. Greg is also a member of the firm’s management committee as well as the Compliance Committee and the firm’s Best Execution Task-Force. With more than 25 years of quantitative research, portfolio management and trading experience, Greg has an extensive background in managing quantitative investment portfolios. Greg is also a recognized authority on options valuation and hedging strategies and has authored several articles on these subjects. Greg received a Bachelor of Arts degree in Economics from the University of California, Irvine. He also received an M.A. in Economics at California State University, Fullerton where he wrote his masters thesis on estimating the probability of default for third world debt.
Steve Sapra is a Portfolio Manager responsible for the ongoing research effort for the firm's U.S. equity strategies as well as the day-to-day portfolio management and trading of such accounts. Prior to joining Analytic Investors, Steve was employed as a Senior Consultant at BARRA, Inc. in Berkley, CA. He consulted with investment managers in the area of risk control and strategy implementation. Steve received an MA in Economics from the University of Southern California and a BA in Economics from California State Polytechnic University, Pomona. Steve, a Chartered Financial Analyst, is currently a lecturer at California State Polytechnic University, Pomona, teaching Economics part-time.
Using mean-variance optimization along with other types of optimization to form a scoring screen..
Review of recent economic data.
Speaker description.
Following the performance of constituents and using the memory.
Review of recent economic data.
Carolie is a Portfolio Manager for ING Aeltus Investment
Management, Inc. in Hartford, Connecticut. She manages the ING Small Company Fund, and the real estate securities portfolio within the ING Strategic Allocation Funds. She was previously an Assistant Portfolio Manager for ING Aeltus' Institutional Small Cap strategies, and has been a member of the Small Cap team since joining the firm in 1998 as a Quantitative Equity Analyst. Prior to joining the firm, she worked in the fixed income department at Loomis Sayles and before that at Colonial Management Associates. She has conducted research on real estate securities for the Center for Real Estate and Urban Economic Studies at the University of Connecticut. Ms. Burroughs received her B.S. in Mathematics from the University of Connecticut and M.B.A. from the Fuqua School of Business at Duke University. She holds the Chartered Financial Analyst designation.
William is Director and a senior quantitative analyst in the quantitative
resources group where he focuses on quantitative equity research and products.
He joined in 2004 from Banc of America Capital Management, where he was a Vice
President and senior quantitative analyst, a role in which he conducted
quantitative research, and managed top performing quantitative portfolios.
William holds a B.E. in management information systems and an M.E. in systems
engineering from Tsinghua University in Beijing, and a Ph.D. in economics from
Boston University. He has co-authored articles in academic journals including
Journal of Derivatives.
Alex joined Sanford C. Bernstein, Inc. (now part of Alliance Capital) in
1988, shortly after graduating from The Cooper Union with the degree in
Electrical Engineering. During the past decade, he either led or played
a senior role in numerous projects related to stock selection
strategies, quantitative aspects of global portfolio management and
product design. Key responsibilities included design of numerous global
and international services (including hedge funds), application of
optimization to portfolio construction and development of the
Bernstein's multi-factor global quantitative stock selection model (in
use since Q1 of 2001). Since March 2002, Alex is also a co-manager of the
Bernstein Global Diversified Hedge Fund.
Presentation of final projects
Course Description
Prerequisites
FINANCE 453, Global Asset Allocation and Stock Selection. There are no exceptions. Also, there are no Audits allowed in this course.
Requirements
There is one major requirement in this course. The final project will count for 100% of your grade.
The groups and project links are found:
Project publication
There is a possibility that some of the projects could be posted to the Financial Economics Network. When posting, my name will be appended as the final name on the case credits. [In finance, by the way, last name out of alphabetical order indicates the smallest contribution.] I will have more information on this during the term.
Outside Class Contact
This is my teaching term -- and I am generally available. Email is an efficient way to get me at odd hours,
cam.harvey@duke.edu
. If needed, call my assistant, Tara Bowens 660-7775 or email her at tbowens@duke.edu,
to set up an office visit. I also don't mind taking cellular calls at 919-271-8156 (don't hesitate to call me at odd hours, if I am not available, I turn the telephone off).
Grading
As I mentioned above, 100% of the grade is based on the project.
If you choose to work in groups, you will also need to complete a group self evaluation. I will email you near the end of the course to remind you about this.
Copyrights
I reserve the copyright for all parts of the course. Any commercial reproduction of any course materials including lecture notes taken by students during the class is not allowed unless explicit permission is given by me.
Data resources
We will be using the data available through FACTSET.
Outline and Recommended Reading Assignments
There is little written on Quantitative Stock Selection. Hence, there is not much reading.
Schedule
Will be worked out during the first lecture. We will likely meet once per week for an extended session. At the beginning of each session, there will be a asset-management perspective-discussion of the recent economic data.
1. Wednesday March 23, 2005, 10:00 Seminar Room B
Course overview
Guest Speaker: Robert S. Feldman, Portfolio Manager, FMR
Outline:
1. Types of models
2. Unit of Analysis
3. Data
4. Drawing Conclusions - Inference
5. Using Models
2. Wednesday March 30, 2005, 11:00 Seminar Room B
Univariate Screens
Guest Speaker: Dr. Andrew L. Berkin, First Quadrant
3. Friday April 8, 2005, 9:00am Seminar Room B
Multivariate Screens
Guest Speaker: Peter Swank, Goldman Sachs Asset Management
4. Wednesday April 13, 2005, 11:00am. Seminar Room B
Dynamic Factor Weights
Guest Speaker: 1. Gregory M. McMurran, Chief Investment Officer, Portfolio Manager, Analytic Investors
Guest Speaker: Steven Sapra, CFA, Portfolio Manager, Analytic Investors
5. Tuesday April 19, 2005, 9:00am Seminar Room B
Scoring Screens and Resampling
Guest Speaker: TBA,
6. Tueday April 26, 2005, 8:30am Seminar Room B
Migration Tracking
Carolie Burroughs, Portfolio Manager, ING Aeltus Investment
William Weng, Director, Credit Swisse Asset Management
Alex Shabshis, Vice President and Senior Quantitative Analyst,
Alliance Capital Management
7. Wednesday April 27, 2005, 11:00am Seminar Room B
Student projects