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LUO’S QES MONTHLY NEWSLETTER

Quantitative Research
Economics
Portfolio Strategy

February 2018 QES Newsletter


Tone at the top? Quantifying Management Presentation
EDITORIAL

The February Edition

Welcome to the February edition of our monthly newsletter. The aim is to make it easier to access all of our published research in the past month. We summarize our most topical papers to keep you abreast of our latest work. We also highlight the latest news and investment themes with respect to Quantitative Investing, Economics, and Portfolio Strategy (QES).
FEATURED

TONE AT THE TOP?

During earnings season, there are dozens or hundreds of company presentations and conference calls on the same day. Investors' attention is limited, but more importantly, we are naturally not good at deciphering the hidden mood and messages from management conversations. We showcase how our suite of proprietary and sophisticated NLP, machine learning, linguistic, and psychological research can be used to extract actionable information from earnings conference calls. Click here for the full report.

EDITOR’S NOTE



Yin Luo, CFA, CPA
YLuo@wolferesearch.com
Gaurav Rohal, CFA
GRohal@wolferesearch.com
QES Desk Phone: 1.646.582.9230
Luo.QES@wolferesearch.com

Introducing D2

D2 is a database of databases, including a comprehensive list of over 700 datasets (both alternative and traditional), analytical platforms, technology systems, and tools in investing. We have intelligently tagged each data vendor by asset class, sector, region, subject, and data frequency, enabling fast filtering and selection by each client’s own interest. Click here for the full report

Reach out to us if you want access to D2

D2

SEEKING ALPHA FROM INSIDER TRANSACTIONS
In this research we study insider transactions, i.e., when company management, board members, and significant shareholders purchase or dispose their own firm's shares. We would expect insiders to be better informed of their companies' financial/operational performance and future prospects. But, the actions of officers and directors are heavily scrutinized by regulators. As such, they often take extra caution and prudence in their transactions to avoid drawing unnecessary attention.


The crux of this research is balancing the edge that insiders offer versus the prudence they must exercise. We refine the conventional insider transaction data with some fundamental sculpting and behavioral filtering based on the characteristics of insiders.

Introducing a Research Series for Fundamental Investors – “Portfolio Compass”

QES Desk Phone: 1.646.582.9230
Luo.QES@wolferesearch.com
ALL EYES ON INFLATION
The US equity market initially plunged but eventually registered a strong rally after the surprising above-consensus CPI inflation number released yesterday. Regardless how we measure inflation, it has been trending upwards consistently since mid-2015, but is still only at historical average levels. There are about 64 months in the past 40 years that are similar to today's environment, i.e., high economic growth, modest/high inflation, and low unemployment.
Our near-term view is that the market seems to be overly concerned about the prospect of rising inflation, surging bond yields, and contractionary monetary policies, which opens the door to potential buying opportunities of oversold risky assets.

A SURVIVAL GUIDE IN A TURBULENT MARKET

Factor Investing, Big Data, and Machine Learning Provide the Best Protection
The sell-off which started from late January has different characteristics from a typical risk-off event. Almost all major asset classes fell sharply. Large-cap equity plunged more than small-cap stocks. Defensive sectors provided almost no downside protection

Our model suggests that we are currently in a "high-vol" regime. Volatility is likely to fall slightly from the recent peaks, but remains at elevated levels in the near term. Our style rotation model favors low beta, growth, price momentum, ROE, and earnings revision.

Interested in our Portfolio, Infrastructure, or Custom Solution Services?


QES Desk Phone: 1.646.582.9230
Luo.QES@wolferesearch.com
SURGING COMMODITIES , RISING INFLATION, WEAKENING DOLLAR
This month , we first study the tangled relationship among commodity prices, trade-weighted US dollar, inflation, and interest rates. Commodities (especially crude oil and industrial metals) have rallied in recent months. At the same time, inflation has been steadily rising (albeit still modest by historical standards), while trade-weighted US dollar has further weakened against other major currencies.
We attempt to answer the question whether the sell-offs towards the end of January marks a turning point for equities, or is only a temporary setback. Market valuation is certainly rich, by almost any measures. However, investors also appear to be overly concerned, which poses potential buying opportunities in the near term.
WHY THE MARKET VOLATILITY HAS BEEN SO LOW?
Despite the recent spike in volatility, by historical standard, risk and uncertainty are still fairly modest. In this paper, Why the Market Volatility has been so Low?, we offer a rigorous study on the key drivers of equity market volatility. Many market participants have offered explanations, but few have tested their hypotheses. Many bits of conventional wisdom fail to explain volatility statistically. For example, we find neither central bank monetary policies nor the ETF growth has a statistically significant relationship with risk. On the other hand, anticipated global economic growth, equity markets (and shocks to the market), and investor sentiment are useful to understand volatility.

Lastly, we offer our economic fundamental based volatility forecast and asset allocation recommendations under normal and heightened volatility regimes.

Screens, Models and more...

Interested in any screens or models?
  • Objective, Systematic, Customizable, and Transparent Stock Screens
  • LEAP: Our flagship machine learning based global stock selection model
  • SMAP: Forecasting M&A targets using Alternative Data
  • CSI: Systematically identifying companies with accounting and governance irregularities
  • SPEC: Analyzing textual component of company filings for red flags
  • MRM: Objectively identifying companies with the greatest likelihood of margin expansion
  • Daily Factor Performance: Daily factor performance
  • SIAS: Systematic insider alpha strategy
  • SMEC: NLP and machine learning on management presentations and call transcripts
  • LEAP-China:Our machine learning stock selection model for China A shares
Reach out to us for any assistance with your modeling or screening needs.
JOURNAL OF QUANTITATIVE, ECONOMICS, AND STRATEGY
Luo's QES Team held an inspiring seminar on the dynamic China A share market on February 9 at Wolfe's New York City office. Over 50 buy-side investment professionals, researchers and data scientists attended the event. We invited speakers from various backgrounds (i.e., a finance professor, a renowned buy-side asset manager with both US and China experience, and a market/alternative data provider) to share their research and insights on the rapidly growing China domestic equity market.
This document gives clients a brief summary of all of the speakers and their presentations. We highlight the key takeaways from each topic as well as provide a link to the presentation. We plan on hosting more seminars and a series of global QES conferences in 2018. We look forward to your continued attendance and support of team QES.
Upcoming QES Conferences
Event Date Organizer Location
QES Seminar in Chicago 7-Mar Wolfe QES Chicago
QES Seminar in London 12-Mar Wolfe QES London
QES Seminar in Boston 20-Mar Wolfe QES Boston
QES Seminar in San Francisco 24-Apr Wolfe QES San Francisco
Please contact your Wolfe Research sales representatives at sales@wolferesearch.com for details
Upcoming Other Conferences, Entertainment, & Travel
Event Date Organizer Location
World Exchange Congress 2018 27-Feb Terrapinn Muscat
Machine Learning & AI in Quant Finance Conference NYC 2018 1-Mar QuanTech New York
European Winter Finance Summit 2018 4-Mar University of Zurich St. Moritz
FOW Trading Amsterdam 2018 7-Mar Global Investor Group Amsterdam
Quant Summit Europe 2018 7-Mar Incisive London
FX Week Australia 2018 15-Mar FX Week Sydney
EMEA Trading Conference 2018 15-Mar FIX Trading London
Machine Learning & AI in Quant Finance Conference London 2018 15-Mar QuanTech London
2018 Napa Conference on Financial Markets Research 23-Mar FMA International Napa Valley
CQA Spring 2018 04-Apr CQA - Chicago Quantitative Alliance Las Vegas
8th International Conference on MATHEMATICAL AND STATISTICAL METHODS FOR ACTUARIAL SCIENCES AND FINANCE 04-Apr Universidad Carlos III de Madrid Madrid
FOW Derivatives World 2018 11-Apr Global Investor Group Hong Kong
Uncommon Knowledge 2018 22-Apr National Association of Active Investment Managers Orlando
TradeTech EU 2018 25-Apr Worldwide Business Research Paris
Quantcon NYC 2018 27-Apr Quantopian New York
The Trading Show Chicago 2018 09-May Terrapinn Chicago
2018 Applied Finance Conference 11-May FMA International New York
3rd PKU-NUS Annual International Conference on Quantitative Finance and Economics 12-May Peking University HSBC Business School Beijing
71st CFA Institute Annual Conference 13-May CFA Institute Hong Kong
Previous Newsletters
Newsletter Theme Date
Inaugral Edition Jan 2018

LOCAL AND INTERATIONAL NEWS

Over 500 buy-side investment professionals attended our 2017 QES Conference.
View the Conference Proceedings

TechByte

There isn’t a single day that passes by when I don’t hear about a new Big Data technology. The field is crowded with many players, some are old guards (e.g., as IBM, Vertica, Oracle), some recently matured (e.g., Hadoop, Druid, S3, Redshift, BigQuery, Spark, Presto) and some are new entrants (e.g., Apache Beam, Snowflake). Except for the old guards, these technologies are built using distributed IO/processing system that gets around age old problem of IO bottleneck. We are noticing consolidation in the fundamental platform space – this is evidenced by the fact that the new entrants, instead of building from scratch, are merely trying to make it easier to use the mature technologies. The new race is on, where the ease of use triumphs the better technology.

Big Data