Quantitative Portfolio Management. Dr. B. Swaminathan, PhD Partner & Director, Research LSV Asset Management Professor of Finance Cornell University. LSV Asset Management. LSV in business for 12 years More than $75 billion under management Academic foundation
Dr. B. Swaminathan, PhD
Partner & Director, Research
LSV Asset Management
Professor of Finance
MSCI: Morgan Stanley Capital International
EAFE: Europe, Australia, and Far East Index
Lakonishok, Shleifer, and Vishny (1994) (LSV) tested
Value/glamour strategies using 30 years of data.
Jegadeesh and Titman (1993) showed that winners outperform losers.
Lee and Swaminathan (2000) confirm these findings and show that trading volume can be used to enhance momentum.
Buy value stocks
with positive momentum.
Short sell glamour stocks with negative momentum
LSV model combines value and momentum by
putting weights on both
Momentum Life Cycle Hypothesis (MLC)
From: Lee and Swaminathan (2000)
Yr -1 to 0
Yr -1 to -5
Major Components of the LSVModel
COMPANIES LISTED ON NYSE, AMEX & OTC,
EXCLUDING ADR’S, REIT’S, FOREIGN
COMPANIES & CLOSED-END FUNDS
FUNDAMENTAL VALUE MEASURES
AND INDICATORS OF NEAR-TERM
ranking of stocks
STOCKS WITH TOP 15%
COMPANY LIMITATION DIVERSIFICATION OBJECTIVE
Risk Control (Optimizer)
90 - 100 STOCK
- LOW M/B, P/E; HIGH DIVIDEND
YIELD; BROADLY DIVERSIFIED
Large Cap Portfolio Investment Process
A STOCK IS SOLD WHEN:
Portfolio 20% -3% 20%
Benchmark 25% -8% 15%
Alpha -5% 5% 5%
We are evaluated on alpha not on raw return!
1 and 2: 5 years as of 8/31/07
3 and 4: from inception (12/1/93) to 8/31/07