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Join Dr. John Guerard to explore the history of efficient portfolios in the US and Japan, learn cross-cultural portfolio optimization, and acquire analytical tools to enhance your portfolio management.



Event Abstract:

In 1992, John Mulvey co-edited a Special Issue, entitled “Financial Engineering”, in the Annals of Operations Research. In that issue, Guerard, Takano, and Yamane (1992) reported mean-variance efficient portfolios for the Japanese and U.S. equity markets and showed that the use of a regression-weighted composite model of earnings, book value, cash flow, sales, and their relative variables and forecasted earnings, outperformed their respective equity benchmarks by approximately 400 basis points annually. William T. (Bill) Ziemba was the referee of the Guerard et al. (1992) paper. Markowitz and Xu (1994) tested the composite model strategy and found that its excess returns were statistically significant from a variety of models tested, and the composite model strategy was not the result of data mining. Thirty years after the issue, we report factor backtesting results and robust regression modeling in creating optimized US and Japanese portfolio results for the 2000-2022 period, a combination of methods and the latest commercially available multi-factor models for portfolio selection. Recent publications by Markowitz, Guerard, and Xu report additional support for the absence of data mining. Furthermore, the weighted latent root regression modeling is still relevant. Our results suggest that stock selection models can be effectively employed to deliver excess returns. The authors believe that financial anomalies exist, persist, and most likely will exist and can be profitably exploited. However, the use of changing risk models could be a source of confusion in portfolio selection attribution. Quantitative investing requires constant implementation and discipline to maximize client wealth.



About the Speaker:

John B. Guerard, Jr., ex-Director of Quantitative Research at McKinley Capital Management and member of their Scientific Advisory Board, transitioned roles in June 2020 after nearly 15 years. He has taught as an Affiliate Instructor at the University of Washington and is an Industry Associate at Georgia Tech's Financial Services Innovation Lab. Guerard holds degrees from Duke, UVA, Georgia Tech, and a Ph.D. in Finance from the University of Texas, where he studied under Jan Mossin. He has taught at several universities, worked in various financial institutions, and co-managed a Japanese equity portfolio with Harry Markowitz. An awarded researcher in socially responsible investing, Guerard has authored numerous finance publications and served as Associate Editor for the Journal of Investing and The International Journal of Forecasting. His research spans multiple top-tier journals in the field.