Quantitative managers make use of computers and mathematical techniques to
sift through financial statistics to select stocks.
They observe historical quantitative relationships and incorporate these
relationships into "models" which help them choose their stocks. Using
a computer to sift through historical data on companies is called "screening".
A quantitative manager might prepare a program to screen two thousand stocks
according to a particular set of characteristics or parameters. For example, she
might establish that, historically, stocks with low price-to-earnings ratios and
high growth rates of earnings over two years outperformed the market for the
next year. This historical observation of performance is called "back
testing" of a model. Based on the strength or "robustness" of
this relationship, she then would select stocks that currently met these "criteria"
or tests. |