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Fat-Tailed Dragon Asset Management

Fat-Tailed Dragon Asset Management. - Stock selection by scoring screens. Attribute No. 1: Trend in ROIC (Operating Income / Total Invested Capital) = ROIC t+1 - ROIC t Attribute No. 2: Price Momentum = (P t+1 - P t ) / P t Time Horizon (1982-1998) Sample data

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Fat-Tailed Dragon Asset Management

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  1. Fat-Tailed DragonAsset Management - Stock selection by scoring screens

  2. Attribute No. 1:Trend in ROIC (Operating Income / Total Invested Capital) = ROIC t+1 - ROIC t • Attribute No. 2:Price Momentum = (Pt+1 - Pt) / Pt • Time Horizon (1982-1998) • Sample data • Rebalance annually every Mar. 31st

  3. Return On Invested Capital:Average Return 4.28%, Volatility 20.48%

  4. Price Momentum:Average Return 8.88%, Volatility 23.68%

  5. 4 Approaches: • Univariate - Top / Bottom 50 only • Univariate - Double Score • Univariate - Quintile • Bivariate

  6. Univariate - Top/Bottom 50Assign 79 to PM, 21 to ROIC based on optimization result. Average return: 10.85%, Volatility: 24.45%

  7. Univariate - Double ScoreOnly buy stocks that receive positive score from both attributes and only sell stocks that receive negative score from both attributes. Average return:12.77%,Volatility:28.69%

  8. Univariate - QuintileBuy top 50, sell bottom 50.Average return: 10.66%, Volatility: 20.93%

  9. Bivariate -First sort: keep top/bottom 120. Second sort: keep top/top 50 and bottom/bottom 50.Average Return: 9.78%, Volatility: 22.65%

  10. Summary

  11. Key Findings / Conclusions: • Combining two attributes works better than using just one attribute. • 4 approaches yield similar results and patterns. • The pattern is somewhat related with the pattern in the general movement of the market.

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