Market-neutral long-short strategy enables stable returns in mid-cap stocks.
Data-driven analysis and optimization effectively exploit market inefficiencies.
High Sharpe ratio (2.132) demonstrates superior risk-adjusted performance over benchmarks.
Opinion
This study provides strong empirical evidence that mid-cap stocks exhibit inefficiencies that can be exploited using a structured long-short approach. The data-driven optimization framework ensures systematic investment decisions, while the long-short combination enhances risk management against market volatility.
Core Sell Point
A market-neutral long-short strategy in mid-cap stocks, driven by data-driven optimization, can reduce risk while achieving superior risk-adjusted returns, outperforming traditional benchmarks.
"Market-Neutral Strategies in Mid-Cap Portfolio Management: A Data-Driven Approach to Long-Short Equity" This paper examines the effectiveness of a market-neutral long-short strategy in the U.S. mid-cap stock market, leveraging market inefficiencies and quantitative optimization techniques.
1. Research Objectives
Develop an effective long-short strategy that exploits inefficiencies in mid-cap stocks.
Optimize portfolios using financial indicators such as profitability, valuation, and liquidity.
Assess stability and resilience across different market conditions.
2. Research Methodology
Used U.S. stock data (2013-2023) sourced from WRDS and Compustat.
Ensured point-in-time (PIT) compliance to prevent data leakage.
Applied data preprocessing techniques such as outlier removal, multicollinearity adjustments, and feature selection.
Maintained market neutrality while optimizing portfolios based on profitability, valuation, and liquidity factors.
Conducted backtesting across various market conditions to evaluate strategy performance.
3. Key Findings
1.High Sharpe Ratio Achieved:
The backtested strategy (2013-2023) produced a Sharpe ratio of 2.132, demonstrating strong risk-adjusted returns.
2.Effectiveness of a Data-Driven Approach:
Combining fundamental factors (profitability, valuation, and liquidity) proved to be highly effective.
Reinforces the importance of fundamental analysis in investment decision-making.
3.Stability and Resilience of Market-Neutral Strategy:
Backtesting across different market conditions confirmed the strategy’s robustness and consistency.
Suggests that the strategy is not overly dependent on specific market trends.
4.Optimization Enhances Risk Management:
Portfolio optimization effectively controlled risk while outperforming market benchmarks.
The balanced long-short position reduced exposure to market volatility.
Conclusion
This study confirms that a market-neutral long-short strategy can generate stable returns in the mid-cap segment. By leveraging data-driven optimization techniques, the strategy effectively exploits market inefficiencies while maintaining stability across market conditions. A high Sharpe ratio indicates superior risk-adjusted returns, reinforcing its advantage over traditional benchmarks.
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