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Stock Selection in Korea

Stock Selection in Korea. Beyond Efficient Frontier Capital Management Onthida Boonpiamsak Pab Jotikasthira Jeongsik Lee Neal Triplett Jaekeun Yoon. Agenda. Sorting method and attributes for screening Diagnostics Factor/portfolio selection Optimization Conclusion.

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Stock Selection in Korea

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  1. Stock Selection in Korea Beyond Efficient Frontier Capital Management Onthida Boonpiamsak Pab Jotikasthira Jeongsik Lee Neal Triplett Jaekeun Yoon

  2. Agenda • Sorting method and attributes for screening • Diagnostics • Factor/portfolio selection • Optimization • Conclusion

  3. Sorting MethodAttributes for Screening We used sorting method in stock selection: • Univariate Attributes • Dividend yield • Earning growth • Projected Earnings Growth • Projected P/E • ROE • Reinvestment Rate • Momentum (1mo., 1yr.) • Cash Flow to Price • Earnings to Price • Book to Price • Revenue Growth • Bivariate Attributes • BV/P and MCAP • Dividend yield and Earning growth • Dividend yield and Projected EY

  4. Diagnostics Performance Measurement • Average return and excess returns over market and risk-free • % Periods > Market • % Periods with positive return • Average ranking score Consistency Measurement • Standard deviations of returns and excess returns • Year by year ranking score

  5. Factor /Portfolio Selection Significant Attributes • CF/P • E/P • PPE • ROE • RIR • BV/P and MCAP • DY and PPE

  6. Korean Stock Market (6/93-5/98)

  7. Factor/Portfolio Selection Cash Flow/Price

  8. Factor/Portfolio Selection Earning/Price

  9. Factor/Portfolio Selection Prospective Price/Earning

  10. Factor/Portfolio Selection Return On Equity

  11. Factor/Portfolio Selection RIR

  12. Factor/Portfolio Selection Low Book Value/price Sorted by MCAP

  13. Factor/Portfolio Selection Low Dividend Yield Sorted by Projected P/E

  14. Match market volatility and maximize return: Weight Weight (Top) (Bottom) BV/P and DY -0.20 0.32 CF/P 0.37 -0.20 E/P -0.02 0.00 PPE 0.43 0.07 ROE 0.38 0.11 RIR -0.20 -0.06 Optimization

  15. Optimization In-sample performance: • Beat market by 0.96% per month on average. • Beat market 68.75% of the time. Out-of-sample test on 11-month data: • Beat market by 2.83% per month on average. • Beat market 72.73% of the time.

  16. Conclusion • Significant attributes in selecting stocks include CF/P, E/P, PPE, ROE, RIR, and BV/P and dividend yield together. • In Korea, stock selection (by sorting method) can help improve performance. • One important finding is that top fractiles tend to have high correlations with one another; hence, we may need to use bottom fractiles to reduce volatility.

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