### Exploiting Multiple Stock Factors for Stock Selection

**June 9, 2016** - Calendar Effects, Momentum Investing, Size Effect, Value Premium

How good can factor investing get? In his May 2016 paper entitled “Quantitative Style Investing”, Mike Dickson examines strategies that:

- Aggregate return forecasting power of four or six theoretically-motivated stock factors (or characteristics) via monthly multivariate regressions.
- Use inception-to-date simple averages of regression coefficients, starting after the first 60 months and updating annually, to suppress estimation and sampling error.
- Create equally weighted portfolios that are long (short) the 50%, 20%, 10%, 4%, 2% or 1% of stocks with the highest (lowest) expected returns.

The six stock characteristics are: (1) market capitalization; (2), book-to-market ratio; (3) gross profit-to-asset ratio; (4) investment (annual total asset growth); (5) last-month return; and, (6) momentum (return from 12 months ago to two months ago). He considers strategies employing all six characteristics (Model 1) or just the first four, slow-moving ones (Model 2). He considers samples with or without microcaps (capitalizations less than the 20% percentile for NYSE stocks). He estimates trading frictions as 1% of the value traded each month in rebalancing to equal weight. Using monthly data for a broad sample of U.S. common stocks during July 1963 through December 2013 (with evaluated returns commencing July 1968), *he finds that:* Keep Reading