Fundamentals Drive Alpha
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Date: 03-21-2005
Start Time:
6:00pm
End Time: 7:30pm
Speaker: Bob Litterman, Managing Director, Goldman, Sachs & Co.
Location: 412 Shapiro CEPSR, Davis Auditorium
ABSTRACT
In today's challenging market environment, generating alpha is more important than ever for investors. "Fundamentals Drive Alpha" explains how the quantitative equity group at Goldman Sachs Asset Management uses the Black-Litterman model to incorporate fundamental research in our investment process. In particular, the presentation, and an accompanying paper available at http://activealpha.gs.com/structured_equity.html, describes the global equity alpha drivers identified by our research, the economic rationale behind them, and how we use them to construct optimal client portfolios.
BIO
Bob is the co-developer, along with the late Fischer Black, of the
Black-Litterman Global Asset Allocation Model, a key tool in the Investment
Management Division's asset allocation process. As Director of Quantitative
Resources, Bob oversees Quantitative Equities under the leadership of Bob Jones;
the Quantitative Strategies group, co-headed by Mark Carhart and Ray Iwanowski;
and the Global Investment Strategies Group, headed by Kurt Winkelmann. In total,
these groups include over 100 professionals.
Prior to moving to the
Investment Management Division, Bob was the head of the Firmwide Risk department
since becoming a Partner in 1994. Preceding his time in the OT&F Division,
Bob spent eight years in the Fixed Income Division's research department where
he was co-director, with the late Fischer Black, of the research and model
development group. Bob and Fischer co-wrote two papers, Asset Allocation:
Combining Investor Views with Market Equilibrium, September 1990; and Global
Asset Allocation With Equities, Bonds, and Currencies, October 1991.
Additionally, Bob and Guang-Liang He wrote a third paper, The Intuition Behind
Black-Litterman Model Portfolios, which was published in December 1999. These
Goldman Sachs publications describe the Black-Litterman Global Asset Allocation
Model. Three other papers that discuss the use of modern portfolio theory in
risk management are Managing Market Exposure, which was co-authored with Kurt
Winkelmann and published in January 1996, and Hot Spots and Hedges, which was
published in October 1996, and The Green Zone, which was co-authored with
Jacques Longerstaey, Jacob Rosengarten and Kurt Winkelmann and published in
March 2000. Bob and Kurt also published Estimating Covariance Matrices in
January 1998. Most recently, Bob has published several papers regarding active
alpha. The first was a three-part series entitled Active Alpha Investing Series,
published in September 2003. The three individual articles were, A New Paradigm
for Today's Challenges, All Alphas are Not Created Equal, and Putting it All
Together. In March 2004, Bob published The Active Risk Puzzle. In April 2004,
Bob co-authored with Andrew Alford, Robert Jones and Terence Lim Fundamentals
Drive Alpha. Bob has published two books, the first in 1998, when The Firmwide
Risk department of Goldman Sachs, under Bob's leadership and in collaboration
with SBC Warburg Dillon Read, co-authored the book, The Practice of Risk
Management. The last, recently published in July 2003 by Wiley & Co., is
Modern Investment Management: An Equilibrium Approach. It is authored by Bob
Litterman and the Quantitative Resources Group of Goldman Sachs.
Before
joining Goldman Sachs in 1986, Bob was an Assistant Vice President in the
Research Department of the Federal Reserve Bank of Minneapolis and an Assistant
Professor in the Economics Department at the Massachusetts Institute of
Technology. Bob received a B.S. from Stanford University in 1973 and a Ph.D. in
Economics from the University of Minnesota in 1980.
In 2003, Bob was one
of the initial inductees by Risk Magazine into their "Risk Hall of Fame."