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(More customer reviews)In this Great Recession, quants have become notorious again, since Black Money, October 19th, 1987. At that time, it is called "program trading". Fast forward to May 6th, 2010, the "flash crash" happened, causing Dow to drop more than 1000 points in couple of minutes. Now, it is called high-frequency trading, which accounts for 40% to 70% of all trading on every stock market in U.S.. Regardless of program trading or high-frequency trading, it is based on quantitative techniques, which makes the book "Quantitative Equity Investing -- Techniques and Strategies" interesting, particularly so for these who want to understand what these "crazy" quants from Wall Street are doing and outsmart the markets or market makers.
Modern quantitative techniques are based on modern portfolio theory, introduced by Harry Markowitz in 1952,
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. ...... 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(, with the help of powerful computers).
All these techniques have been skillfully depicted by the export authors, who have all worked closely with hedge fund and quantitative asset management firms, who are famous university professors with series of books focusing on related financial topics.
The book starts with the role and use of mathematical techniques in finance. The authors' argument is very powerful:
As there are unpredictable events with a potentially major impact on the economy, it is claimed that financial economics cannot be formalized as a mathematical methodology with predictive power. In a nutshell, the answer is that black swans exit not only in financial markets but also in the physical sciences. But no one questions the use of mathematics in the physical sciences because there are major events that we cannot predict.
The book continues with financial model building, which covers modern regression theory, applications of Random Matrix Theory, dynamic time series model, vector autoregressive models, cointegration analysis. Then, it moves on to include financial engineering, static and dynamic factor models, asset allocation, portfolio models, transaction costs, trading strategies, etc.
Overall, the book is math-heavy except the first chapter. It is an excellent textbook for students majored in finance. It is also a good guide book for traders who focus on quantitative trading techniques in a daily basis. It is also a recommendation for power investors who start to leverage brokerages' open trading APIs. It is not recommended for these who don't have math background and who don't understand any mathematical terms mentioned in the earlier paragraphs of this review.
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Quantitative Equity Investing: Techniques and Strategies (Frank J. Fabozzi)A comprehensive look at the tools and techniques used in quantitative equity management
Some books attempt to extend portfolio theory, but the real issue today relates to the practical implementation of the theory introduced by Harry Markowitz and others who followed. The purpose of this book is to close the implementation gap by presenting state-of-the art quantitative techniques and strategies for managing equity portfolios.
Throughout these pages, Frank Fabozzi, Sergio Focardi, and Petter Kolm address the essential elements of this discipline, including financial model building, financial engineering, static and dynamic factor models, asset allocation, portfolio models, transaction costs, trading strategies, and much more. They also provide ample illustrations and thorough discussions of implementation issues facing those in the investment management business and include the necessary background material in probability, statistics, and econometrics to make the book self-contained.
Written by a solid author team who has extensive financial experience in this area
Presents state-of-the art quantitative strategies for managing equity portfolios
Focuses on the implementation of quantitative equity asset management
Outlines effective analysis, optimization methods, and risk models
In today's financial environment, you have to have the skills to analyze, optimize and manage the risk of your quantitative equity investments. This guide offers you the best information available to achieve this goal.
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