THE FRANK J. FABOZZI SERIES
QUANTITATIVE
EQUITY
INVESTING
FRANK J. FABOZZI, SERGIO M. FOCARDI, PETTER N. KOLM
Techniques and Strategies
I
n 1952, Harry Markowitz introduced a critical
innovation in investment management—popularly
referred to as modern portfolio theory—in which
he suggested that investors should decide the allocation
of their investment funds on the basis of the trade-off
between portfolio risk, as measured by the standard
deviation of investment returns, and portfolio return, as
measured by the expected value of the investment return.
Entire new research areas grew from his groundbreaking
idea, which, with the spread of low-cost powerful
computers, found important practical applications in
several fi elds of fi nance. Developing the necessary inputs
for constructing portfolios based on modern portfolio
theory has been facilitated by the development of
Bayesian statistics, shrinkage techniques, factor models,
and robust portfolio optimization. Modern quantitative
techniques have now made it possible to manage large
investment portfolios with computer programs that look
for the best risk-return trade-off available in the market.
This book shows you how to perform quantitative
equity portfolio management using these modern
techniques. It skillfully presents state-of-the-art
advances in the theory and practice of quantitative
equity portfolio management. Page by page, the
expert authors—who have all worked closely with
hedge fund and quantitative asset management
fi rms—cover the most up-to-date techniques, tools,
and strategies used in the industry today.
They begin by discussing the role and use of
mathematical techniques in fi nance, offering sound
theoretical arguments in support of fi nance as a
rigorous science. They go on to provide extensive
background material on one of the principal tools
used in quantitative equity management—fi nancial
econometrics—covering modern regression theory,
applications of Random Matrix Theory, dynamic
time series models, vector autoregressive models,
and cointegration analysis. The authors then look
at fi nancial engineering, the pitfalls of estimation,
methods to control model risk, and the modern
theory of factor models, including approximate
and dynamic factor models. After laying a fi rm
theoretical foundation, they provide practical advice
on optimization techniques and trading strategies
based on factors and factormodels, offering a modern
view on how to construct factor models.
$95.00 USA/$114.00 CAN
FRANK J. FABOZZI is Professor in the Practice
of Finance and Becton Fellow at the Yale School of
Management and Editor of the Journal of Portfolio
Management. He is a Chartered Financial Analyst
and earned a doctorate in economics from the City
University of New York.
SERGIO M. FOCARDI is Professor of Finance
at EDHEC Business School in Nice and a
founding partner of the Paris-based consulting
firm The Intertek Group. He is also a member
of the Editorial Board of the Journal of Portfolio
Management. Sergio holds a degree in electronic
engineering from the University of Genoa and a
PhD in mathematical finance from the University
of Karlsruhe as well as a postgraduate degree
in communications from the Galileo Ferraris
Electrotechnical Institute (Turin).
PETTER N. KOLM is the Deputy Director of the
Mathematics in Finance Master’s Program and
Clinical Associate Professor of Mathematics at
the Courant Institute of Mathematical Sciences,
New York University; and a founding Partner of
the New York–based financial consulting firm the
Heimdall Group, LLC. Previously, Petter worked
in the Quantitative Strategies Group at Goldman
Sachs Asset Management. He received an MS in
mathematics from ETH in Zurich; an MPhil in
applied mathematics from the Royal Institute of
Technology in Stockholm; and a PhD in applied
mathematics from Yale University.
Jacket Illustration: Jupiter Images
QUANTITATIVE EQUITY INVESTING
Quantitative equity portfolio management is a fundamental
building block of investment management. This hands-on guide
closes the gap between theory and practice by presenting state-of-
the-art quantitative techniques and strategies for managing equity
portfolios.
Authors Frank Fabozzi, Sergio Focardi, and Petter Kolm—all of
whom have extensive experience in this area—address the essential
elements of this discipline, including fi nancial model building,
fi nancial engineering, static and dynamic factor models, asset
allocation, portfolio models, transaction costs, trading strategies,
and much more. They provide numerous illustrations and thorough
discussions of implementation issues facing those in the investment
management business and include the necessary background material
in fi nancial econometrics to make the book self-contained. For many
of the advanced topics, they also provide the reader with references
to the most recent applicable research in this rapidly evolving fi eld.
In today’s fi nancial environment, you need the skills to analyze,
optimize, and manage the risk of your quantitative equity portfolio.
This guide offers you the best information available to achieve this
goal.
FABOZZI
FOCARDI
KOLM
QUANTITATIVE EQUITY INVESTING
Techniques and
Strategies
Techniques and strategies for successful
quantitative equity management
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