Equity Valuation and Portfolio Management

QUESTIONS

1. Identify at least three ways that a quantitative investor's process may differ from a fundamental investor's process.
2. What are three ways in which the quantitative and fundamental approaches complement one another?
3. When would a quantitative investor use an information coefficient (IC) over a quintile return?
4. Why do quantitative investors create stock selection models for?
5. What types of data is used in traditional stock selection models?

¹ Throughout the chapter, we discuss whether characteristics can separate a stock with strong future returns from one with weak future returns. Many times reference will be made to a “strong” characteristic that can differentiate the strong- from weak-performing stocks.

² In this chapter, “characteristic” means the attributes that differentiate companies. Quantitative investors often refer to these same characteristics as factors or signals, which they typically use in stock selection models and like models.