A Monte Carlo measure to improve fairness in equity analyst evaluation

John Robert Yaros, Tomasz Imieliński

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

The Wall Street Journal’s “Best on the Street,” Star Mine and many other systems measure analyst stock-rating performance using variations on a method we term the “portfolio method,” whereby a synthetic portfolio is formed to track the analyst’s ratings. At the end of the evaluation period, analysts are compared by their respective portfolio returns. Of the pitfalls to this method, one most troubling is that the analysts are generally covering different sets of stocks over different time periods. Thus, each analyst has access to different opportunities and just comparing portfolio values is unfair. In response, we present a Monte Carlo (MC) method where, for each analyst, we generate numerous “pseudo-analysts” with the same coverage over the same time periods as the real analyst. Using this method, we are better able to compare analysts, adjusted for their individual opportunities. We draw comparisons between our results and the results from existing systems, showing that those systems are less precise in reflecting analyst performance.

Original languageEnglish (US)
Title of host publicationInterdisciplinary Topics in Applied Mathematics, Modeling and Computational Science
EditorsRoman N. Makarov, Roderick V. N. Melnik, Ilias S. Kotsireas, Hasan Shodiev, Monica G. Cojocaru, Monica G. Cojocaru, Roman N. Makarov, Roderick V. N. Melnik, Ilias S. Kotsireas, Hasan Shodiev
PublisherSpringer New York LLC
Pages525-531
Number of pages7
ISBN (Print)9783319123066, 9783319123066
DOIs
StatePublished - 2015
EventInternational Conference on Applied Mathematics, Modelling and Computational Science, AMMCS 2013 - Waterloo, Canada
Duration: Aug 26 2013Aug 30 2013

Publication series

NameSpringer Proceedings in Mathematics and Statistics
Volume117
ISSN (Print)2194-1009
ISSN (Electronic)2194-1017

Other

OtherInternational Conference on Applied Mathematics, Modelling and Computational Science, AMMCS 2013
Country/TerritoryCanada
CityWaterloo
Period8/26/138/30/13

All Science Journal Classification (ASJC) codes

  • General Mathematics

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