Quantitative Equity Portfolio Management, 2nd Edition

Capitalize on Today’s Most Powerful Quantitative Methods to Construct and Manage a High-Performance Equity Portfolio

Quantitative Equity Portfolio Management is a comprehensive guide to the entire process of constructing and managing a high-yield quantitative equity portfolio. This detailed handbook begins with the basic principles of quantitative active management and then clearly outlines how to build an equity portfolio using those powerful concepts. When this classic guide was first published in 2006, quantitative equity portfolio management was an investing approach reserved for elite hedge funds.

Since then, however, the field has exploded—growing from $238 billion in assets under management to well over $2 trillion today. Now, the authors have brought Quantitative Equity Portfolio Management completely up to date, helping any sophisticated investor construct and manage a high-yield equity portfolio using today’s most powerful tools and methods.
Quantitative Equity Portfolio Management provides detailed coverage of critical topics, including portfolio optimization, rebalancing and transaction costs, tax management, leverage, backtesting, and much more. The new edition includes fully updated tables and graphs, with downloadable monthly factor returns.

Filled with practical—and replicable—techniques, this book includes:

Advice for building smart beta ETFs and mutual funds
Factor definitions and tests of their outperformance with real stock return data
Labs using real data written in R, MATLAB, and STATA. These are available on the website – www.ludwigbc.com under exclusive password protected website – contact authors for access.
On the accompanying website, the solutions to all chapter
Methods for dealing with outlier data
Reliable methods to deal with transaction costs
Details on the behavioral biases and market frictions that can lead to investment anomalies
Applications of ESG data to create socially responsible portfolios
Advanced techniques for optimizing market-neutral portfolios
An excellent melding of financial theory with real-world practice
A wealth of down-to-earth financial examples and case studies

An essential reference for professional money managers and students taking advanced investment courses, Quantitative Equity Portfolio Management offers a full array of methods for developing high-performance equity portfolios that deliver lucrative returns for clients.
Each chapter of this all-in-one portfolio management resource contains an appendix with valuable figures, tables, equations, mathematical solutions, and formulas. In addition, the book as a whole has appendices covering a brief history of financial theory, fundamental models of stock returns, a basic review of mathematical and statistical concepts, an entertaining explanation and quantitative approach to the casino game of craps, and other on-target supplemental materials.

About the Authors

Ludwig B. Chincarini, CFA, PhD, is professor of finance at the School of Management at the University of San Francisco and Advisor to United States Commodity Fund Investments. As a member of the academic council of Index IQ, he was instrumental in creating and developing some of the newest alternative ETFs. Chincarini served on the academic council of Future Advisor, one of the early Robo-Advisor firms, which was purchased by BlackRock in 2015. He also co-developed the S&P 500 equal-weight ETF (RSP) and index and helped build one of the first basket trading brokerages—Folio Investing (purchased by Goldman Sachs)—with automated procedures to manage hundreds of quant portfolios. He is author of the new concept of crowding in The Crisis of Crowding. He received a PhD from the Massachusetts Institute of Technology and an BA from the University of California at Berkeley.

Daehwan Kim, Ph.D., is a professor in the Department of Economics at Konkuk University, South Korea. Previously, he taught at American University in Bulgaria, Ewha Womans University School of Public Policy, Korea University, Aalto University Executive Program, NUCB Business School, and Nizhny Novgorod State University. Kim worked for Folio Investing as a financial economist and for First Private Investment Management in Frankfurt as a senior portfolio manager, and he has advised several hedge funds and investment companies based in East Asia. He also holds a Ph.D. in economics from Harvard University.

The first edition of QEPM has been used as a reference source for leading practitioners and used to teach at many business schools throughout the world. Some of the business schools that were gracious enough to use the book in the past include Harvard Business school, UCLA, the University of Chicago’s Booth School of Business, Bocconi University in Italy, Macquarie University in Australia, The University of Maryland Robert Smith School of Business, Warwick Business School, Hagan School of Business, Pepperdine University, Pomona College, Addis Ababa University in Ethiopia, the University of Central Missouri, the American University in Bulgaria, Konkuk University in South Korea, the University of Hong Kong, Chulalongkorn University in Thailand, Diego Portales University, NYU Polytechnique, Jindal Global Business School, Cornell University, Universidad Jesuita de Guadalajara, Institute for Technology and Management in Mumbai, University of Miami School of Business Administration, ALBA Graduate Business school at The American College of Greece, and many others. We thank you all for using our book.

Book Reviews

“There are far too few good books spanning the realm of quantitative finance. Dr. Chincarini has once again addressed this important need, with this welcome new edition of his excellent book with Dr. Kim, Quantitative Equity Portfolio Management. This will serve as a valuable text in academic Financial Engineering programs, and a go-to reference for any practitioner in this field.” —ROB ARNOTT, Founder and Chairman of the Board at Research Affiliates, Inc.

“Very few good practitioners’ cookbooks are available on quantitative equity portfolio management (QEPM). Ludwig Chincarini and Daehwan Kim’s book reduces this dearth. No previous volume has combined depth and breadth on the subject in a unified framework by a single set of authors. Practitioners who are serious about quantitative investing and want to focus on the details of running the numbers should have this book on their shelves.” —MARK RZEPCSNSKI, Founding Partner, CEO at AMPHI Research and Trading

“Making the transition from the walls of academia to Wall Street has traditionally been a difficult task…This book provides this link in a successful and engaging fashion, giving students of finance a road map for the application of financial theories in a real-world setting.” —MARK HOLOWESKO, CEO and Founder, Holowesko Partners

“This text provides an excellent synthesis of a broad range of quantitative portfolio management methods…In addition, there are a number of insightful innovations that extend and improve current techniques.” —DAN DIBARTOLOMEO, President and Founder, Northfield Information Services, Inc.

“Quantitative equity portfolio management is a complex and important field. This book transforms a newbie into a pro by guiding the reader in a complete and smooth manner such that even non-researchers can understand the basics. When the book first came out, it was ahead of its time and influenced the field. The new edition brings new ideas and new techniques to an ever-growing field. A great book to give to new entrants in the field or to teach at university.” —FRANK FABOZZI, Professor at EDHEC University, Prolific Finance Author, and Editor of Journal of Portfolio Management

“The book, Quantitative Equity Portfolio Management, and Professor Chincarini’s discussions of it were part of a solid bedrock of knowledge that I proceeded to use in my trading and investing career. Transaction costs, liquidity constraints, correlations, finding mispriced securities, and portfolio theory are all highlighted in this great introduction to quantitative investment management.” —DANNY SCINTO, CFA, Senior Portfolio Manager and Partner at BFAM Partners

“In what has become a quant industry must-read, this book offers a wealth of knowledge for both the seasoned practitioner and aspiring quant alike. Chincarini’s style manages to keep the reader engaged while also serving as a reference resource to occupy your bookshelf for years to come.” —MATTHEW J. WALKUP, Portfolio Manager, Putnam Investments

“Systematic factor investing and factor models have emerged as key components in the investment process. Early in my own career, I found QEPM a helpful guide in how these models can bridge the gap between fundamental and quantitative stock investing. Recent MFE and MBA graduates, and new hires in portfolio construction, risk management or asset allocation will find this book valuable.” —ANIL RAO, CFA, Executive Director at MSCI

“This impressive book provides a comprehensive overview of modern quantitative equity portfolio management. The authors do an excellent job explaining difficult concepts in a lucid and rigorous manner. The book will no doubt serve as a valuable resource for any investor seeking to apply state-of-the-art techniques to maximize their investment performance.” —JOSE MENCHERO, Head of Portfolio Analytics Research at Bloomberg

“A must-have reference for any equity portfolio manager or MBA student, this book is a comprehensive guide to all aspects of equity portfolio management, from factor models to tax management.” —ERIC ROSENFELD, Former Principal & Co-founder of JWM Partners and Long-Term Capital Management

“The book is very comprehensive in its coverage, detailed in its discussions and written from a practical perspective without sacrificing needed rigor.” —DAVID BLITZER, Former Managing Director and Chairman, Standard & Poor’s Index Committee

“This is an ambitious book that both develops the broad range of artillery employed in quantitative equity investment management and provides the reader with a host of relevant practical examples. The book excels in melding theory with practice.” —The Late STEPHEN A. ROSS, Former Franco Modigliani Professor of Financial Economics, Massachusetts Institute of Technology, Inventor of the APT, the Binomial Option Pricing Model, and Agency Theory

“This book provides the quantitative foundations for a quantitative fund manager. It is one of the main texts that I have used in the past 15 years for my investment classes for quantitative master students and selected undergraduates. The key feature of the book is its accessibility, particularly attractive for intuition-seeking readers.” —GUOFU ZHOU, Bierman and Spears Professor of Finance, Olin Business School, Washington University

“I used the first edition of QEPM to teach my Investments and Portfolio Management class at the University of Hong Kong. This one-of-a-kind book, together with the accompanying programming codes, provided almost everything a quant-oriented student needed to become a master. I cannot think of a better alternative for teaching portfolio management except for this new edition!” —CHUN XIA, Managing Director and Chief Economist, the Noah Holdings Group, Shanghai and Former Professor of Finance at the University of Hong Kong