The Current State of Quantitative Equity Investing (original) (raw)

2018, Econometric Modeling: Capital Markets - Portfolio Theory eJournal

Quantitative equity management is concerned with rigorous, disciplined approaches to help investors structure optimal portfolios to achieve the outcomes they seek. At the root of disciplined, modern investment processes are two things: risk and return. The notion of total return is obvious—price appreciation plus any dividend payments. Risk may not be so straightforward. In most quantitative approaches, risk is viewed as more akin to a roulette wheel; that is, the possible outcomes are well specified and the likelihood of each outcome is known, but in advance, an investor does not know which outcome will be realized. In this piece, we curate the history of quantitative equity investing, which traces its origins to the development of portfolio theory and the capital asset pricing model (CAPM). In equities, some of the first quantitative approaches were aimed at confirming the theoretical predictions of the CAPM. In particular, the expected return of a risky asset depends only on the ...

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