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The Journal of Portfolio Management

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Primary Article

Contextual Fundamentals, Models, and Active Management

Eric H. Sorensen, Ronald Hua and Edward Qian
The Journal of Portfolio Management Fall 2005, 32 (1) 23-36; DOI: https://doi.org/10.3905/jpm.2005.599493
Eric H. Sorensen
The president and chief executive officer of PanAgora Asset Management in Boston.
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  • For correspondence: esorensen@panagora.com
Ronald Hua
Director of Dynamic Equity at PanAgora Asset Management.
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  • For correspondence: rhua@panagora.com
Edward Qian
A senior portfolio manager at PanAgora Asset Management.
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  • For correspondence: eqian@panagora.com
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Abstract

Application of a multifactor alpha model across a diverse range of stocks is a popular way to forecast security expected returns, but it is a one-size-fits-all approach. An alternative alpha-modeling approach represents a parsimonious way to model securities individually in order to capture idiosyncratic return behavior in different security contexts. The investment objective is information ratio maximization through optimal alpha factor weights. This technique demonstrates the importance of factor categories such as cheapness, quality, and sentiment that vary significantly across various security contexts. Practitioners can see that the approach improves the ex post information ratio over a one-size-fits-all approach.

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The Journal of Portfolio Management
Vol. 32, Issue 1
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Contextual Fundamentals, Models, and Active Management
Eric H. Sorensen, Ronald Hua, Edward Qian
The Journal of Portfolio Management Oct 2005, 32 (1) 23-36; DOI: 10.3905/jpm.2005.599493

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Contextual Fundamentals, Models, and Active Management
Eric H. Sorensen, Ronald Hua, Edward Qian
The Journal of Portfolio Management Oct 2005, 32 (1) 23-36; DOI: 10.3905/jpm.2005.599493
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