Quantitative Style Investing

52 Pages Posted: 19 May 2016

See all articles by Mike Dickson

Mike Dickson

Horizon Investments; University of North Carolina at Charlotte

Date Written: May 18, 2016

Abstract

I introduce a systematic portfolio choice solution that significantly beats a benchmark market portfolio by an average of 34.2% per year after transaction costs. The corresponding annual Sharpe ratio is 1.97 per year compared to 0.42, over 4.7 times the size of the benchmark. A more conservative sample that excludes micro cap stocks yields an annual Sharpe ratio 2.18 times the benchmark. I construct my solution by applying multivariable cross-sectional regressions of six key stock characteristics, to aggregate forecasting signals from multiple sources. I apply simple filtering techniques to reduce estimation and sampling error, use only information known at time t, and predict expected returns. I validate the procedure by achieving commensurate results as prior studies when forming portfolios from decile sorts. However, by sorting stocks by expected returns into more extreme portfolios, i.e. 25 and 50 portfolios, I am able to further enhance performance gains over existing works.

Keywords: active management, stock-picking, return predictability

JEL Classification: G11, G12, G17, C13

Suggested Citation

Dickson, Mike, Quantitative Style Investing (May 18, 2016). Available at SSRN: https://ssrn.com/abstract=2781560 or http://dx.doi.org/10.2139/ssrn.2781560

Mike Dickson (Contact Author)

Horizon Investments ( email )

Charlotte, NC
United States
7049193611 (Phone)
7049193611 (Fax)

HOME PAGE: http://www.horizoninvestments.com/

University of North Carolina at Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
828
rank
27,017
Abstract Views
2,102
PlumX Metrics