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Quantitative Equity Portfolio Management by Daehwan Kim, Ludwig B Chincarini

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CHAPTER 3Basic QEPM Models

The greatest work is inside man.

—Pope John Paul II

3.1 INTRODUCTION

The central, unifying element of quantitative equity portfolio management (QEPM) is the quantitative model that relates stock movements to other market data. Quantitative equity portfolio managers create such models to predict stock returns and volatility, and these predictions, in turn, form the basis for selecting stocks for the portfolio.

Some readers may wonder whether it is necessary to know how to make quantitative models from scratch when there are so many excellent commercial software packages with prepackaged models. When a portfolio manager relies completely on commercial software, he or she may not be able to use all the information available ...

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