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t t I + I n I . I t 8s; 325
326 Expanding Opportunities Overall, the portfolio increases in value from $10 to $11.04 million for a net gain of $1.04 million and a 10.4 percent return. The bear market scenario assumes the market falls 15 by perrent, with the long positions falling by 12 percent and the short tions by 18 percent. This provides the same return spread as in the bull market scenario. The decline in value of the longs translates into a loss of $1.08 million, while the decline in value of the shorts translates into a gain of $1.62 million. The net gain for the long-shor portfolio is, again,’$0.54 million, exactly the same result when as the market rose by 30 percent.Cash returns are the in same both market environments, so overall portfolio results are the same. The return to the basic market-neutral portfolio, then, consists of three components-the interest on the liquidity buffer, the rebate from the short sale proceeds, and the return spread between the gregate long and aggregate short positions in the long-short portfolio. Because the aggregate long positions and the aggregate short positions are of approximately equal value and have equal sensitivity to the underlying market, those po,rtions of their returns that reflect overall market movements (their returns to beta) cancel out. All that is left is the return spread. The return to the long-short portfolio is thus a true reflection of the success of the manager’s stock selection skills. A QUESTION OF EFFICIENCY Figure 13-2 assumes symmetric market-relative returns for the lon and short positions; that is, in both bull and bear market environments, the longs were assumed to outperform the market 3 per- by cent while the shorts were assumed to underperform by 3 percent. But there are reasons to believe that short sale candidates-the most overpriced stocks, which offer the lowest expected retums-may be . more common or more mispriced than the underpriced stocks that constitute the candidates for purchase. In that case, one might expect higher excess returns from short positions than from long tiOnS. Stocks may be overpriced, and overpricing may continue over some nontrivial period, because investors tend toward overoptimism. Several theories and some evidence suggest this that may be the case. Bubbles and fads, for example, may cause investors to b
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EQUITY MANAGEMENT.
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EQUITY MANAGEMENT Quantitative Anal
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To Ilene, Lauren, Julie, Sam, and E
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CONTENTS Foreword by Harry M. Marko
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Contents ix Chapter 4 Calendar Anom
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Contents xi Implications 272 High-D
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FOREWORD by Harry M. Markowitz, Nob
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Foreword xv In practice, of course,
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Foreword xvii that an RDM would con
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xix
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INTRODUCTION Life on the Leading Ed
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Life on the Leading Edge 3 tion abo
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Life on the Leading Edge 5 clude th
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Life on the Edge Leading 7 stocks t
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Life on the Leading Edge 9 . Quanti
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Life on the Leading Edge 11 By the
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Life on the Leading Edge 13 ple, st
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Life on the Leading Edge 15 find be
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Life on the Leading Edge 17 equal t
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P A R T ONE Selecting Securities A
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Selectine Securities 21 stocks. Suc
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selecting secunties 23 unmoved by s
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CHAPTER 1 The Complexity of the Sto
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The Complexity of the Stock Market
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The Complexity of the St& Market 31
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The Complexity of the St& Market 37
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The of the Complexity Stock Market
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The Comdexitv of the Stock Market 4
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V 7
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Disentangling Equity Return Regular
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Disentangling Equity Rehun Regulari
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Disentangling Equity Rehun Regulari
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64 selecting securities aged 59 bas
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66 selecting Securities FIGURE 2-2
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68 selecting securities FIGURE 2-3
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70 selecting securities tic of 17.8
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72 selecting securities Some Implic
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74 selecting securities Table 2-2 d
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I l
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82 Seleaine Securities these time-s
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84 selecting securities of 9.7. The
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86 selecting securities 2. There ar
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and deferring gains [as per Constan
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90 selecting securities 35. For exa
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92 selecting securities 49. Before
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94 selecting securities Ball, R. 19
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96 selecting securities Iowa, Ames.
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98 Seleaine securities James, W. an
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100 selecting securities Nicholson,
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102 selecting securities Tinic, S.
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104 selecting securities VALUE AND
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106 selecting securities Street Jou
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108 Selectine Securities This is no
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110 selecting securities plaining s
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112
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114 selecting securities transient
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116 selecting securities Na'ive Exp
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118 selecting securities (1988c)l.
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l20 selecting securities average of
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124 selecting securities We have de
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126 selecting securities movements
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l28 selecting securities 34. Pensio
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130 selecting securities Einhom, S.
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132 Selectine securities Poterba, J
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136 selecting securities The availa
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138 selecting securities subsequent
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142 Selectine securities FIGURE 4-2
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144 selecting securities others usi
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146 Selectine Securities FIGURE 4-3
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l48 SelectirlE securities a market
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150 . selecringsecurities There is
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152 selecting securities 1981 and 1
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154 seleding securities Chari,V., R
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156 Selectine securities McNichols,
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160 selecting securities that betwe
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162 selecting securities Handa, Kot
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164 selecting securities risk does
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166 selecting securities returns ac
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168 selecting securities ket return
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~ more 170 Selectine securities tiv
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h h h h W v ) 000000 m N m w r "80q
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~~~ ~ ~~ 174 selecting securities A
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176 selecting securities hibit feed
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178 Seledine securities multivariat
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-2 1982 1983 1984 1985 1986 1987 18
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182 selecting securities rate produ
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184 Seledine Securities 11. Further
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186 Seleaine securities REFERENCES
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188 selecting securities Fama, E. a
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190 selecting securities Miller, E.
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194 Selectine Securities modeling p
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196 selecting securities surement e
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Earnings Estimates, Predictor Speaf
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Earnings Estimates, Predictor Speci
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0 a I "F c2 . 2 0
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216 selecting securities The Return
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U) J U) C Q) U) C S r jo-0 eke I C
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?68% $1-0 I 220
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222 Seleaine Securitiff ings data f
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224 selecting securities 4. The dif
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226 selecting securities 20. Note t
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230 Managing Portfolios have concen
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232 Managing Portfolios portfolios.
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234 Manaeine Portfolios of investme
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236 Managing Portfolios There is, n
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238 Managing Portfolios bound to ig
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240 Managing Portfolios expected to
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242 Managing Portfolios mance attri
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244 Managing Portfolios those inves
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246 Managing Portfolios vide a bigg
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248 Managing Portfolios If the firm
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250 Managing Portfolios REFERENCE J
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252 Managing Portfolios This invest
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254 Managing Portfolios FIGURE S-l
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256 Managing Portfolios manager‘s
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258 Managing Portfolios FIGURE S 4
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260 Managing Portfolios Imposition
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264 Managing Portfolios Recent stud
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High-Definition Style Rotation 267
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0 N
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272 Managing Portfolios TABLE 10-2
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Page 303 and 304: 282 Managing Portfolios REFERENCES
Page 305 and 306: 284 Expanding Opportunities and “
Page 307 and 308: 286 Expanding Opportunities such as
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Page 311 and 312: 290 ExpandingOpprtunities vided sho
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Page 333 and 334: 312 ExpandingOpportunities applied
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Page 339 and 340: 318 Expanding Opportunities the $4.
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Page 391 and 392: 370 Expanding Opportunities securit
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376 Expanding Opportunities may be
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378 Expanding Opportunities from se
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hance good performance, but they ca
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382 Name Index Clarke, Roger G., 25
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384 Name Index Levis, M., 174,175,1
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386 Name Index Swanson, H., 183,188
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388 Subject Index Disentangling equ
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390 Subied Index MAE, 170,182 Marke
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392 Subiect Jndex Security analysis
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