Numeric Investors Case 5 Questions

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Numeric Investors Focus: Equity portfolio management, security selection, institutional fund management, bottom-up investment strategies, performance evaluation. Assignment Questions 1. What do you think of Numeric as a firm? How are long-short products of Numeric different from its long-only products? Ans: The long-short products involved holding a portfolio of long positions in combination with a portfolio of short positions. For the long positions, Numeric would buy “good” stocks, and for the short positions, it would sell short “bad” stocks. The firm could exploit its ability to predict losers and winners, a so called “double alpha strategy”. In addition, by matching the broad market and other common exposures of the long…show more content…
The firm will reevaluate stocks on an intraday and overnight basis. Understand especially the Pepsico example in the case. What are the assumptions on which Numeric's two models are based? What are the sources of value added? Ans: Momentum investing was based on the belief that security analysts tended to under react to unexpected changes in corporate earnings and that investors, by pegging stock prices to consensus estimates, also tended to under react. Thus, if the firm could forecast revisions in analysts’ earnings estimates, it also would be able to forecast changes in stock prices. The strategy was to get in early and ride the stock, either up or down, until its earnings revisions ran out of momentum. Momentum Approaches: • Based on past changes in analysts’ estimates. The premise was that analysts clustered their forecasts of company earnings, and would revise their earnings estimates incrementally rather than in big jumps. These small revisions would then encourage other analysts to update their estimates and the consensus estimate will be move up or down predictably over time. • Based in earnings surprises of the earning announcements were significantly different from the consensus of analysts’ expectations. The unexpectedly high or low quarterly earnings will let analysts to
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