Peter

1
Looney Tunes Asset Management
Peter
Juan
Kenny
Russell
2
Assignment Objective

• Apply cross-sectional stock selection model to
  South African stock exchange (100 securities)
• Identify intricacies of building and running such
  a model

3
Model Design

• Coded using Excel VBA
• Data and model results stored in MS Access
• Excel Solver and correlation tools used
• Scalable to any number of securities and
  regression attributes

4
Model Flow

• Run time series regressions for 100 firms
• Store attribute and firm specific coefficients
• Retrieve attributes and firm specific coeffs. on
  a given date for 100 firms
• Run cross sectional regression and store
  intercept and coeffs.

5
Model Flow

• Use coeffs. to forecast next period return
• Generate covariance-variance matrix
• Optimize portfolio using predicted returns and
  volatility and store portfolio weights
• Automatically repeat process for in-sample test

6
Database Layout
7
Problems

• Base data incomplete. Extensive rule base
  included in model to deal with data problems
• Low explanatory power of attributes (low
  t-values) on some securities
• Limited data affects regressions
• Long processing times

8
Results

• Used book-to-market
• Two year in-sample test
• Low average R2 2

9
(No Transcript)
10
Proposed Future Improvements

• Use of GARCH modeling to forecast volatility
• Extend infrastructure to run sorting/screening
  models
• Complete and augment base data with more
  attributes

11
Questions?