Quantitative Equity

Question 1

What are the three types of quant strategies?

Answer 1

1. Fundamental quant
2. Statistical arbitrage
3. High frequency trading

Question 2

Describe the short-term reversal factor strategy

Answer 2

• use returns over past month
• buy losers
• sell winners

Explanation:
- demand pressure and liquidity effects

Question 3

Describe the momentum factor strategy

Answer 3

• use returns over past 12 months excluding the last month (which is tied to ST reversal factor)
• buy winners
• sell losers

Possible explanation:
- underreaction and delayed overreaction

Question 4

Describe the LT reversal factor strategy

Answer 4

• uses returns iver past 60 months excluding last 12 months (tied to momentum factor)
• buy losers
• sell winners

Possible explanation:
Overreaction

Question 5

What is seen in general regarding value and momentum strategies?

Answer 5

• momentum outperforms value
• a combination of the strategies outperforms both
• combination has a very high Sharpe ratio

Question 6

Describe quants portfolio construction

Answer 6

• quants apply models in hundreds/thousands of stocks which eliminates most firm-specific surprises
• portfolio is equally long and short (equity market neutral portfolio) eliminates overall stock market risk
• quants also eliminate industry risk
• only risk left is the one associated with factors the quant bets on