Bottom-Up Stock Selection Method

1
Bottom-Up Stock Selection Method

• Korea Stock Market

Long Term Optimal Management
2
Agenda

• Methodology
• Analysis and results
• Final remarks

3
Methodology

• Steps
• 1. Build the database
• 2. Develop a algorithm and program
• 3. Analyze results for each simple sorting factor
• 4. Build optimal portfolio using top and bottom
  fractiles of each sorting factor
• 5. Track results for the score based portfolio

4
Analysis and results

• For each sorting factor considered
• Returns and volatility for the hold period of
  analysis
• Stability Average return for different periods
  of time
• times outperforming the index benchmark in
  bullish and bearish periods

5
Analysis and results

• Selected sorting factor considered in our
  analysis
• Dividend yield
• Earnings yield
• Book to price ratio
• Cash earnings to price yield
• Prospective price earnings 12 month forward
• Prospective price earnings fiscal year
• Revenue Growth

6
Korea Stock Market Performance
7
Average return
8
Period Outperform Market
9
EY Factor Performance Return
10
CF Factor Performance Return
11
Out of sample EY factorIndex
12
Score based allocation

• Mean-Variance optimization
• Subjective scoring system
• Other methods
• multivariate analysis
• Cross-sectional regressions

13
Final Remarks

• Decisions that have great impact over results
• Using arithmetic or geometric mean return
• Using equally or MCap weighted portfolio
• High correlation among fractiles
• Data consistency through time for each factor
• Minimum fractile size