Group Project: US large cap stock selection strategies
• Each group pick a different theme: VALUE
No two groups pick the same theme.
• Starting from the raw signals (data set is available on blackboard)
• Cleanup data, and treat raw signals, for each month
For each raw signal,
• Assign NA is a signal has more than 30% missing
• Truncation outliers, assign NA if more than 5 sigma
• Industry demean (minus the average value for each sector)
• Standardize: minus the mean and divide by standard deviation
• Assign zero to NA
• Using forward returns, build the multi-factor model, run OLS
• Build the theme, use that theme as alpha
• Long-only portfolio: For each month, select top 10% alphas to form a long-only portfolio, calculate portfolio performance for each month and for the whole period
• Long-short portfolio: For each month, buy long the top 10% alphas and sell short the bottom 10% alpha to form a long-short portfolio, calculate portfolio performance for each month and the whole period