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What Happened to the Quants in 2007?????

GROUP 5. What Happened to the Quants in 2007?????. Outline. Weekly Group Update Update on Table 6 (2007 paper) Update on Table 2 (2007 paper) Plans for the 2008 paper. Overview of Table 6. Table 6

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What Happened to the Quants in 2007?????

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  1. GROUP 5 What Happened to the Quants in 2007?????

  2. Outline Weekly Group Update Update on Table 6 (2007 paper) Update on Table 2 (2007 paper) Plans for the 2008 paper

  3. Overview of Table 6 • Table 6 • Focuses on the year by year average daily returns of the contrarian trading strategy applied to US common stocks. • The following calculations were made • Average Daily Return for 1998 • Return Multiplier for 1998 • Required Leverage Ratio 1998

  4. Overview of Table 6 • Steps of Code • Step 1: Read only the data from excel file • Step 2: Filter the data for shares with share prices less than $5 and more than $2000 • Step 3: Beginning on the first trading day of January 1998, compute the returns for each stock using Rit-k., based on what was available the previous day • Step 4: Sum all Rit−k for 1998 and divide by the total number of securities.

  5. Overview of Table 6 • Steps of Code (continued) • Step 5: Compute the weight for each security • Step 6: Take absolute value of all weights and sum. Then divide N to generate the total dollar investment • Step 7: Calculate the average return

  6. Comparison of Results • Table 6 • Average Daily Return 1998 : 0.57% • Average Daily Return 1998 (our calculation) : 0.41% • Average Daily Return 1999 : 0.44% • Average Daily Return 1998 (our calculation) : 0.27% Observation: We have more companies than the authors. For instance, in 1999 we have 7612 companies while the authors have 4736.

  7. Goal for Next Week • Table 6 • Complete the table for 2000 – 2007.

  8. Progress on Table 2 • Table 2 • The goal was to calculate average daily returns, standard deviation of daily returns, and annualized Sharpe ratio for 1995 – 2007. • This required us to first split the companies into deciles based on their market cap (table 1), then perform the above calculations within each decile.

  9. Progress on Table 2 • Based on the recommendation from last week, we computed the market caps for each company using the data available for the first trading day of the year. • We used Matlab code to split the companies into deciles and calculated the average market cap and average price for each decile (results of table 1).

  10. Comparison of Results for 1999 Observation: We have more companies than the authors. This could be a problem.

  11. Goals for Next Week • Table 2 • If our method of generating the data for table 1 is correct, we will continue to work with the deciles that we already computed. • We are already in the process of modifying our Matlab code to calculate the average daily returns, standard deviation of daily returns and annualized Sharpe ratio (Table 2) for each decile.

  12. Goals for Next Week • Generate tables 3 , 5 , 7 using the same Matlab code • Table 3: Reports the unleveraged daily returns of the contrarian strategy for July 30, 2007 – August 31, 2007. • Table 5: Reports the daily returns of the contrarian strategy for August 1998 – September 1998 • Table 7: Reports the leveraged daily returns of the contrarian strategy for July 30, 2007 – August 31, 2007 Using a leverage ratio of 8: 1 (i.e., multiply the entries in table 3 by 8/2=4)

  13. 2008 Paper • Our goal is to reproduce figure 1 & 2 in this paper. • Figure 1: Shows the cumulative daily returns for the Market, SMB, HML, Momentum Factors, and Contrarian Strategy from 1/3/07 – 12/31/07. • Figure 2: Shows the cumulative performance of 5 equity market neutral portfolios constructed from 1/3/07 – 12/31/07.

  14. 2008 Paper • Market SMB, HML, and Momentum factor data were downloaded from Kenneth French website. • http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/ • CRSP was used to get daily returns for stocks from 1/3/07 – 12/31/07. • NYSE website was used to get volume data.

  15. Calculations for Figure 2 • The following calculations will be made for Figure 2: • Book to Market Factor: • Earnings to Price Factor: • Cashflow-to-Market Factor: • Price Momentum Factor: • Earnings Momentum Factor: • We will also generate the daily regressions and the 5-day moving averages.

  16. Question??

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