Fundamental Analysis

Quantitative vs. Fundamental Analysis in Institutional Money Management: Where’s the Beef?

Russell B. Gregory-Allen∗ Massey University r.gregory-allen@massey.ac.nz Hany A. Shawky University at Albany, SUNY h.shawky@albany.edu Jeffrey Stangl Massey University j.stangl@massey.ac.nz

September 2008

We thank Henk Berkman, Charles Corrado, Charles A. Trzcinka and seminar participants of the meetings of the Academy of Financial Services, FINSIA, Australian Banking and Finance Colloquium. All remaining errors are of course our own.
∗

Corresponding author 1

Quantitative vs. Fundamental Analysis in Institutional Money Management: Where’s the Beef?

Abstract

In the money management industry, there is a “quiet” controversy over who does a better job, Traditional Managers (Fundamentalists), or Quantitative Managers. This issue has been examined by Gruber (1996), and Pastor and Stambaugh (2003) and more recently by Zhao (2006) and Wermers, Yao and Zhao (2007) using mutual fund portfolios. We reexamine this issue using the Plan Sponsor Network Database (PSN), a survivorship free database, which reports on how managers actually manage investment portfolios with respect to both style and types of stock selection methods used. Our empirical results indicate that when examining marginal performance that is purely attributable to the use of a distinct Primary Investment Process, only the Fundamental approach is shown to significantly add value.

2

I.

Introduction

There are two main approaches used in the selection of stocks in actively managed equity portfolios. The first is the traditional approach which is based on fundamental analysis where managers’ research and analyze the unique aspects of individual firms.1 The second approach is the more quantitative approach, in which managers use pre-set mechanical models to identify stocks. The popularity of the quantitative approach is attributed to the belief that it has the potential to be less... [continues]

Read full essay