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The Laws Of Quantitative Investing | Michael Robbins
Forward Guidance
The Challenges of Value Investing and Predicting the Future in Quantitative Investing
Value investing has had a tough road in quantitative investing, and factors that used to work well now require a more nuanced approach with a multi-factor model. Predicting the future in addition to expectations is crucial, as expectations can be wrong. The belief that valuations of equities are reliant upon the risk-free rate is being challenged by recent market rallies, even as interest rates have increased. The precision and timeliness of the valuation mechanism cannot be relied upon. Many people have not experienced a hiking cycle like this and do not understand how businesses will adapt. The Fed is finding its way in making decisions on when to stop hiking, as it is hard to know when the economy will be affected. There can often be a disconnect between market action and the risk-free rate.
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