global asset allocation 3/1/2001 peterjuankennyrussell looney tunes asset management
TRANSCRIPT
Global Asset Allocation3/1/2001
PeterJuan KennyRussell
Looney Tunes Asset Management
Global Asset Allocation3/1/2001
Assignment Objective
Apply cross-sectional stock selection model Apply cross-sectional stock selection model to South African stock exchange (100 to South African stock exchange (100 securities)securities)
Identify intricacies of building and running Identify intricacies of building and running such a modelsuch a model
Global Asset Allocation3/1/2001
Model Design
Coded using Excel VBACoded using Excel VBA Data and model results stored in MS AccessData and model results stored in MS Access Excel Solver and correlation tools usedExcel Solver and correlation tools used Scalable to any number of securities and Scalable to any number of securities and
regression attributesregression attributes
Global Asset Allocation3/1/2001
Model Flow
1.1. Run time series regressions for 100 firmsRun time series regressions for 100 firms
2.2. Store attribute and firm specific coefficientsStore attribute and firm specific coefficients
3.3. Retrieve attributes and firm specific coeffs. on a Retrieve attributes and firm specific coeffs. on a given date for 100 firmsgiven date for 100 firms
4.4. Run cross sectional regression and store Run cross sectional regression and store intercept and coeffs.intercept and coeffs.
Global Asset Allocation3/1/2001
Model Flow
5.5. Use coeffs. to forecast next period returnUse coeffs. to forecast next period return
6.6. Generate covariance-variance matrixGenerate covariance-variance matrix
7.7. Optimize portfolio using predicted returns and Optimize portfolio using predicted returns and volatility and store portfolio weightsvolatility and store portfolio weights
8.8. Automatically repeat process for in-sample testAutomatically repeat process for in-sample test
Global Asset Allocation3/1/2001
Database Layout
Global Asset Allocation3/1/2001
Problems Base data incomplete. Extensive rule base Base data incomplete. Extensive rule base
included in model to deal with data included in model to deal with data problems problems
Low explanatory power of attributes (low t-Low explanatory power of attributes (low t-values) on some securitiesvalues) on some securities
Limited data affects regressionsLimited data affects regressions Long processing timesLong processing times
Global Asset Allocation3/1/2001
Results
Used book-to-market Used book-to-market Two year in-sample testTwo year in-sample test Low average RLow average R22 = 2% = 2%
Global Asset Allocation3/1/2001
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
Jan
-98
Fe
b-9
8
Ma
r-9
8
Ap
r-9
8
Ma
y-9
8
Jun
-98
Jul-
98
Au
g-9
8
Se
p-9
8
Oct
-98
No
v-9
8
De
c-9
8
Jan
-99
Fe
b-9
9
Ma
r-9
9
Ap
r-9
9
Ma
y-9
9
Jun
-99
Jul-
99
Au
g-9
9
Va
lue
Portfolio Benchmark (JSE All Share)
Global Asset Allocation3/1/2001
Proposed Future Improvements
Use of GARCH modeling to forecast Use of GARCH modeling to forecast volatilityvolatility
Extend infrastructure to run Extend infrastructure to run sorting/screening modelssorting/screening models
Complete and augment base data with more Complete and augment base data with more attributesattributes
Global Asset Allocation3/1/2001
Questions?