Top-notch investment strategies require top-notch research. The Robeco ‘Super Quant’ internship research projects, in areas such as language analysis or survey-based macroeconomic data, are part of this ongoing effort.
In its effort to keep offering top-notch investment strategies, each year Robeco’s quantitative research department runs several research projects with our ‘Super Quant’ interns, under the supervision of our experienced researchers. Internships typically last for six months and are combined with writing a master’s thesis on the same research topic. For Robeco, these internships represent a unique opportunity to hire students from some of the best universities in finance and econometrics, and to either drill deeper in our existing intellectual property or explore new areas of research. This article describes the key findings of three of these internships in 2018.
This project looked into the links between companies or industries that are not fully incorporated in the prices of financial assets. The idea was to uncover and exploit a potential indirect momentum effect that spills over to the companies we can invest in. Such an indirect momentum effect could enhance our existing stock and corporate bond selection models.
To check whether an indirect momentum effect could provide valuable information, we used monthly data and regressed individual equity or industry returns on one-month lagged industry returns, using a Lasso (least absolute shrinkage and selection operator) regression method.
We made predictions both at industry level, leading to an industry rotation strategy we called ‘industry to industry’, and at individual equity level, leading to a strategy we called ‘industry to company’. The analysis showed that the ‘industry to company’ signal is stronger than the “industry to industry’ signal.
We analyzed 353,173 filings, which amounted to 20 million pages and 5 billion words
This project investigated whether variables derived from the text in annual and quarterly reports may provide useful information for equity and credit investors. To this end, we downloaded all the 10-K and 10-Q files available from the EDGAR database of the US Securities and Exchange Commission.
After some adjustments – to remove numbers, symbols and punctuation marks, for example – we looked at several variables, such as text length, readability and sentiment. In total, we analyzed 353,173 filings, which amounted to 20 million pages and 5 billion words. The processing time was approximately 8 hours. To put this all into perspective, the average financial analyst reads 200 words per minute and would therefore need 50 years to digest all this information.
Our study showed that text analysis can be used to automate and speed up the reading process and that text variables are informative for a firm’s future equity and credit performance, mostly concerning volatility. In conclusion, automated text processing adds value compared with manual methods used in the past.
This project analyzed the use of macroeconomic data to predict equity, bond and currency returns. Most statistics are published with a lag and many academic studies argue that equity returns can predict GDP growth, but that the opposite is not true.
Recent academic work came to different conclusions: macroeconomic data may provide useful investment signals after all. Our study confirmed this, finding for instance that currencies from countries with the best economic momentum outperform those of countries with the worst economic momentum.
This project also looked at so-called ‘surprise’ indices produced by brokers. For many macroeconomic statistics, economists are polled ahead of publication. The ‘surprise’ is the difference between the predicted and the actual outcome. One feature of these indices is that they are not flat, but rise and fall over time. This implies that surveys go through overly pessimistic and overly optimistic periods, which, in turn, can be used to predict equity and bond returns.
Read more about our Super Quant internship program.
1See for example: M. Dahlquist and H. Hasseltoft, 2017, ‘Economic Momentum and Currency Returns’.
The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor or the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). Furthermore, Robeco Institutional Asset Management B.V. (Robeco) does not provide investment advisory services, or hold itself out as providing investment advisory services, in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act).
This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act who are professional investors, or professional fiduciaries representing such non-U.S. Person investors. By clicking “I Agree” on our website disclaimer and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information on behalf of yourself and any underlying investment advisory client, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are, or are a discretionary investment adviser representing, a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States and (v) you are, or are a discretionary investment adviser representing, a professional non-retail investor. Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States and so that it shall not be deemed to constitute Robeco holding itself out generally to the public in the U.S. as an investment adviser. Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction. We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.
This website has been carefully prepared by Robeco. The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use by the general public.