ActiveBeta Indexes / Wiley Finance Editions (PDF)

Foreword by Andrew W. Lo xi Preface xiii SECTION ONE Background CHAPTER 1 The Evolution of Market Indexes and Index Funds 3 The Early Days of Indexing 3 The Inception of the Mutual Fund Industry 5 Enter Academia 6 The Advent of Index/Passive Mutual Funds 7 Index Mutual Funds for the Public 8 Conclusion 9 CHAPTER 2 The Evolution of Equity Style Indexes 11 Empirical Challenges to Financial Theories 11 Theoretical Explanations of Anomalies 13 Establishing Equity Styles 14 Equity Style Index Methodology 16 Pitfalls of Current Equity Style Indexes 17 Conclusion 17 SECTION TWO ActiveBeta Conceptual Framework CHAPTER 3 Introducing Active Betas 21 Defining Active Betas 21 Identifying the Drivers of Equity Returns 24 Verification 26 Exploring the Behavior of Return Drivers 28 CHAPTER 4 Behavior of Short-Term Earnings Expectation and the Link with Price Momentum 29 Analysis Methodology 29 Relationships Studied 31 Decomposing Momentum Returns 48 Conclusion 51 Appendix: Regression Analysis and Correlation Coefficient 51 CHAPTER 5 Behavior of Long-Term Earnings Expectation and the Link with Value 53 Relationships Studied 53 Investment Horizon of Value Strategies 70 Implications for Stock Risk Premium 74 Decomposing Value Returns 76 Conclusion 79 CHAPTER 6 Pricing and Persistence of Systematic Sources of Active Equity Returns 81 Pricing of the Systematic Sources of Active Equity Returns 81 Persistence of the Systematic Sources of Active Equity Returns 89 Momentum, Value, and Risk Aversion 94 ActiveBeta Framework: A Summary of Relationships 99 SECTION THREE ActiveBeta Indexes CHAPTER 7 ActiveBeta Index Construction Methodology 103 Investment Process Indexes 104 Objectives of Investment Process Indexes 105 Conflicting Objectives 108 Transparency, Understanding, and Rationale of the ActiveBeta Momentum Index 110 ActiveBeta Index Construction Process 110 Differences in Construction between ActiveBeta Indexes and Other Public Style Indexes 112 Achieving Objectives 114 Conclusion 120

Khalid Ghayur is the CEO and CIO of Westpeak Global Advisors, LP. He was director of research policy, a member of the Global Executive Committee, and chairman of the Index Policy Committee at Morgan Stanley Capital International (MSCI) Barra. Prior to this, he was global head of quantitative research and strategy for HSBC Global Asset Management. He is a CFA charterholder, has served on the Board of Governors of the CFA Institute, and is a former trustee of the CFA Institute Research Foundation. He received an MBA in finance and international business from the Ecole Nationale des Ponts et Chaussees and an MA and BA in economics from the University of Karachi.

Ronan G. Heaney is Director of Research at Westpeak. Before joining Westpeak, he was a software architect with Multum Information Services and a senior software developer at Swiss Bank Corp. He holds an MS in computer science from Purdue University and a BS in applied physics from Dublin City University, Ireland.

Stephen A. Komon is a Senior Portfolio Manager at Westpeak. Prior to this, he was vice president of foreign exchange and commodities at J.P. Morgan & Co., and he also held positions with UBS AG/Swiss Bank and Dean Witter Reynolds. He holds an MBA in finance and accounting from the University of Chicago Booth School of Business and a BS in commerce from the University of Virginia. He is also a CFA charterholder.

Stephen C. Platt is Director of Portfolio Management at Westpeak. Before joining Westpeak, he cofounded and was a senior vice president of Cordillera Asset Management. He holds a BS in finance from the University of Colorado Leeds School of Business and is a CFA charterholder.

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