In a crowded and increasingly competitive market environment, equity investors are on the constant hunt for novel trading ideas that are additive to existing strategies and incorporate unexplored sources of alpha with rigorous implementation. WRDS Quant Alpha Platform (WQA), developed by a team of PhD researchers at Wharton Research Data Services, is specifically designed to provide a robust integration between cutting-edge academic research and practical fundamental and quantitative equity trading.
Our flagship WQA Composite Long-Short Strategy is an alpha-generating product that incorporates more than 40 signals. In addition to the traditional quantitative signals, such as price momentum, value, and accruals, WQA introduces a whole suite of innovative alpha signals based on the most recent academic research. These include mutual fund flows and holdings (dumb money and best ideas), economic linkages between equity-level profitability and macro-level country exposure (geographical segment), sales growth benchmarked with organic productive asset expansion (abnormal sales momentum), and sentiments in the option markets (option smirk).
While past performance is no guarantee for future results, the WQA Composite generated an average annual return of 12.9 percent during the last 10 years (information ratio 1.9 and information coefficient 2.2 percent).
The WQA composite return of 12.9 percent is in contrast to the poor performance of traditional quantitative strategies. For example, traditional strategies, such as price-momentum (2.1 percent), price to book (4.4 percent), and accruals (5.8 percent), have all under-performed the WQA return. Even if we consider the last five years (where the effect of the 2007-2009 meltdown is pronounced), our WQA produced a positive average annual return of 8.2 percent (price-momentum -1.2 percent, price to book 2.9 percent, and accruals 3.3 percent).
Our rigorous signal-level neutralization results in a long/short portfolio that is strictly neutral to the market. For example, the 10-year beta of the WQA Composite Long-Short Strategy against the Russell 3000 index is -0.05. Our model filters out uncontrolled exposures to common systematic factors and generates trading signal values that are orthogonal to basic characteristics tilts (such as size, industry, price to book, value, momentum, and volatility among others).
Unique aspects of WQA platform
● Team of PhDs with close ties to the academic research community, and research expertise that combines deep knowledge of relevant academic literature with solid practitioner’s experience that enhances efficient execution.
● Ability to back-test complicated strategies by utilizing multiple data sources that allow users to incorporate signal ideas from 100+ data feeds.
● Parsimonious risk model to remove implicit exposure to common risk factors (such as industry, value, size, momentum, volatility, and liquidity).
● State-of-the-art implementation and symmetric risk budgeting allowing superior exploitation of alpha sources.
● Comprehensive additivity analysis allowing traders to identify signal interactions in order to optimize weighting and diversification across signals. Flexible signal delivery channel that caters to the needs of sophisticated quant shops for new idea generation as well as fundamental shops for initial equity screenings.
● Continuous identification of ground-breaking research insights to detect mispricing with fast integration into the WQA platform.
The WQA platform provides a valuable tool for investors testing new sources of alpha. Leveraging the power of the academic research community, WQA is the next level of analysis for testing new strategies. The WRDS team of high-caliber researchers continuously features in top finance journals and practitioner publications, and is dedicated to the development and expansion of our proprietary signal library. With the ability to use over 100 datasets available on WRDS, researchers can integrate text mining, event-driven news and intra-day signals on a daily basis. The WQA platform provides indispensable tools to compete and excel in today’s fast-evolving market conditions.
This article was written by Luis Palacios, PhD, Wharton Research Data Services (WRDS)
For more information, please visit whartonwrds.com or contact: Jamie Stewart, director of sales.
Email: [email protected]
Tel: +1 215 746 4626
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