Alphanomics Part II Alpha in India Rohit Beri
Alphanomics Part II: Alpha in India Rohit Beri Mumbai, Jan 2018
Acknowledgement This presentation has been named after the famous Stanford GSB accounting course “ACCT 340 Alphanomics: Informational Arbitrage in Equity Markets” by Prof. Charles M. C. Lee.
Contents Benjamin Graham in India Joel Greenblatt in India Asness et al. (2013) in India Value Anomaly Accrual Anomaly Analyst Recommendations Post Earnings Announcement Drift Fundamental Data Net Stock Anomaly Insider Trading Anomaly Momentum Anomaly Size Anomaly Investment Strategy Example
Benjamin Graham in India
Benjamin Graham in India Benjamin Graham as a quant • • • Earnings to Price Ratio that is double the AAA bond yield PE of stock is less than 40% of the average PE for all stocks over the last five years Dividend yield > Two-thirds of the AAA Corporate Bond Yield Price < Two-thirds of the Tangible Book Value Price < Two-thirds of the New Current Asset Value Debt-Equity Ratio has to be less than 1 Current Assets > Twice Current Liabilities Debt < Twice Net Current Assets Historical Growth in EPS (over last 10 years) > 7% No more than two years of declining earnings over previous 10 years Modified Graham (Rebecca Levin) • E/P > 15% • Free cash flow yield instead of dividend yield > 6% • Historical growth for 5 years instead of 10 years
Benjamin Graham in India 15 Year 10 Year
Benjamin Graham in India 5 Year 1 Year
Benjamin Graham in India 15 Year
Benjamin Graham in India 10 Year
Benjamin Graham in India 5 Year
Benjamin Graham in India 1 Year
Joel Greenblatt in India
Joel Greenblatt in India Greenblatt’s Magic Formula (The Little Book That Beats The Market) • Return on Capital (ROC) • Price to Earnings(PE) • Look for companies with history of consistently high past ROC (five 5 years of at least 20% annually) • Buy the ones currently trading at the lowest PEs • We select one’s with PEs lower than market median PE
Joel Greenblatt in India 15 Year
Joel Greenblatt in India 5 Year – All Stocks with M Cap > INR 200 Cr
Joel Greenblatt in India 1 Year – All Stocks with M Cap > INR 500 Cr
Asness et al. (2013) in India
Asness et al. (2013) in India Assness et al. Creates a Quality minus Junk portfolio and find the it earns positive risk adjusted returns in 22 out of 23 countries. Profitability Bet in favor of high earnings (ROA, ROE), high gross profit (GPOA, GMAR), and high operating cash flows (CFOA, ACC), Growth Bet in favor of firms with most positive changes in the above profitability variable over past 5 years. Safety Bet against the firms with high Beta, high volatility in returns and earnings, high leverage and high levels of financial distress. Payout Bet against firms with high net equity issuance, high net debt issuance, and low net payout ratio over past 5 years.
Asness et al. (2013) in India 15 Year 10 Year
Asness et al. (2013) in India 5 Year 1 Year
Asness et al. (2013) in India 15 Year
Asness et al. (2013) in India 10 Year
Asness et al. (2013) in India 5 Year
Asness et al. (2013) in India 1 Year
Value Anomaly
Value Anomaly Sales to Price Sales to EV
Value Anomaly Shareholder Yield Earnings to Price
Value Anomaly Book to Price Operating Cash to Price EBIDTA to EV
Value Anomaly – Composite 15 Year 10 Year
Value Anomaly – Composite 5 Year 1 Year
Value Anomaly – Composite 15 Year
Value Anomaly – Composite 10 Year
Value Anomaly – Composite 5 Year
Value Anomaly – Composite 1 Year
Accrual Anomaly
Accrual Anomaly Sloan Accruals Deciles
Accrual Anomaly Sloan Accruals Cumulative
Accrual Anomaly Richardson Deciles
Accrual Anomaly Richardson Cumulative
Analyst Recommendations
Analyst Recommendations Analyst Recommendation Deciles
Analyst Recommendations Analyst Recommendation Cumulative
Analyst Recommendations Analyst Revisions Deciles
Analyst Recommendations Analyst Revisions Cumulative
Analyst Recommendations Revisions + Accruals Deciles
Analyst Recommendations Revisions + Accruals Cumulative
Post Earnings Announcement Drift
Post Earnings Announcement Drift EPS Surprise Deciles
Post Earnings Announcement Drift EPS Surprise Cumulative
Fundamental Data
Fundamental Data Distress Volatility (ROE)
Fundamental Data F Score G Score
Fundamental Data F & G Score Combined
Fundamental Data F & G Score Combined
Net Stock Anomaly
Net Stock Anomaly Net Debt Financing Net Equity Financing
Net Stock Anomaly Net Stock Deciles
Net Stock Anomaly Net Stock Cumulative
Insider Trading Anomaly
Insider Trading Anomaly Insider Net Buying (Value – 1 Year) Insider Net Buying (Volume – 1 Year)
Insider Trading Anomaly Insider Net Buying (Volume – 6 Months) Management Net Buying (Volume – 6 Months)
Insider Trading Anomaly Insider Net Buying (Volume – 6 Months)
Momentum Anomaly
Momentum Anomaly 3 M Total Return 3 M Daily Average Return
Momentum Anomaly 6 M Total Return 6 M Daily Average Return
Momentum Anomaly 1 Y Total Return 1 Y Daily Average Return
Momentum Anomaly 5 D Contra Total Return 10 D Contra Total Return
Momentum Anomaly 3 Y Contra Total Return 5 Y Contra Total Return
Momentum Anomaly 3 M Average Volume 6 M Std Dev of Volume
Momentum Anomaly Short Interest 52 Week High/Low
Momentum Anomaly Momentum Composite - Deciles
Momentum Anomaly Momentum Composite - Cumulative
Size Anomaly
Size Anomaly Size – Entire Market Size + EPS Surprise NSE/BSE 500
Size Anomaly Size – Entire Market
Size Anomaly Size + EPS Surprise – NSE/BSE 500
Investment Strategy Example
Investment Strategy Example Four Factor Model
Investment Strategy Example Momentum Value
Investment Strategy Example Quality Accruals
Investment Strategy Example 20 Year 15 Year
Investment Strategy Example 10 Year 5 Year
Investment Strategy Example 1 Year – Entire Market
Investment Strategy Example 10 Year Cumulative Decile Returns
Investment Strategy Example 10 Year Decile Statistics
Investment Strategy Example 10 Year Factor Statistics 10 Year Return Statistics
Investment Strategy Example 5 Year Cumulative Decile Returns
Investment Strategy Example 5 Year Decile Statistics
Investment Strategy Example 5 Year Factor Statistics 5 Year Return Statistics
Investment Strategy Example 1 Year Cumulative Decile Returns
Investment Strategy Example 1 Year Decile Statistics
Investment Strategy Example 1 Year Factor Statistics 1 Year Return Statistics
Investment Strategy Example Size – Entire Market
Investment Strategy Example Size – Entire Market
Investment Strategy Example 1 Year Cumulative Decile Returns – Entire Market
Investment Strategy Example 1 Year Decile Statistics – Entire Market
Investment Strategy Example 1 Year Factor Statistics 1 Year Return Statistics
Contact • Rohit Beri • rberi@alumni. stanford. edu • +65 8386 0191 • +91 98197 91602
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