Index Modeling to Customize Quantitative Models
for Both Buy-Side and Sell-Side Businesses
In a highly competitive financial market, organizations are constantly trying to gain an edge in rapidly shifting market spaces. Buy-side and sell-side businesses need a way to stand out amongst hundreds of thousands of competing for financial firms that are lobbying for clients. Research Optimus (ROP) provided market forecasts with a reliable degree of probability so that both the buy side research and the sell side research can contribute toward their customer’s bottom line.
Sell-side businesses who make recommendations to buy or sell certain stocks and press certain investment strategies to need appropriate quantitative models to customize their insights and recommendations. Likewise, buy-side businesses who make determinations on investments and advisements require statistically derived market-wide index modeling to understand the impact of specific risks on assets.
However, “less than 50% of investors feel confident in their investment decisions appropriately,” and need guidance in intelligently directing their decisions, which includes risks, asset allocation, investments, the expected rate of returns, and tax considerations. Index modeling to customize quantitative models can strengthen investment decisions, portfolio management, and forecasting capabilities with practical applications in the financial industry.
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Types of Index Modeling
Certain index models will offer more value than others depending on the circumstance and enhance quantitative models for the financial sector with the ultimate goal of improving decision making.
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Single Index model (SIM)
This model provides the simplest technique for quantifying the driving forces behind an asset’s return. A type of asset pricing model, it’s used to evaluate both risk and returns for stocks, and significantly decreases the number of calculations typically needed to model large security portfolios. It also describes two origins of uncertainty for a security’s return, including:
- Macroeconomic: Systematic uncertainty that’s expected to be represented by an individual index of stock returns.
- Microeconomic: Unique uncertainty that’s characterized by a security-specific arbitrary element.
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Multi-Index Model
This technique utilizes multiple components in computations to describe various market occurrences, and equilibrium asset prices. It’s ideal for explaining individual securities or a portfolio of securities.
Various forms of index models serve to customize quantitative models, such as Regression Analysis, Linear Programming, Factor Analysis, and Data Mining, etc. These models also support quantitative reasoning to help buy side and sell side businesses draw better conclusions and make stronger predictions and decisions.
Applications for Buy Side and Sell Side
For Buy-Side Research
From a buy-side research perspective, to support portfolio managers, investors, and analysts, quantitative models provide a means to identify lucrative investment opportunities and mitigate and manage risks. For example, a portfolio manager at an asset management firm can utilize index models to customize quantitative models for:
- Investment favorability
- Optimal security portions of fund management
- Best risk-adjusted return on capital
Index modeling augments buy side skills and capabilities about industry research, research report generation, financial modeling raising capital, and achieving rates of risk-adjusted returns.
For Sell-Side Research
To support sell-side research, index models are important tools to justify why the analyzed company stock is worth purchasing, holding, or selling. For example, quantitative models can be customized by index modeling to provide insight into three scenarios that justify buying a company’s stock based on:
- Financial outperformance
- Valuation expansion
- A combination of both
Sell-side research skills are supported with index modeling in applications like industry research, client relationship management, financial modeling, research report generation, and pitch book presentation.
The sheer amount of financial data available to investors is making it possible to obtain greater insights on investment strategies. Index modeling, incorporated into quantitative training models for fund management, for example, satisfies a growing desire for scalable investment processes that optimize the risk and return profiles of their portfolios.
Statistical Modeling and Research to Enhance Performance of Financial Assets
Research Optimus (ROP) provides academic and mathematical driven statistical solutions for the financial sector, including services aimed at both buy side and sell side objectives. With experienced quantitative modeling analysts and customized financial modeling methods, ROP is helping businesses in pricing, hedging, investment, and portfolio management for all financial assets. To discuss your requirements in details, contact us today and one of our experienced project managers will assist you on how to take it forward.
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