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Equity Research

Research Categories

Security Selection

Plan Architecture and Portfolio Engineering

Long-Short Investing

Portfolio Optimization, Short Sales, and Leverage Aversion

Market Simulation

Market Crises

Equity Management: The Art and Science of Modern Quantitative Investing, Second Edition, 2017

by Bruce I. Jacobs and Kenneth N. Levy, with a foreword by Harry M. Markowitz, Nobel Laureate, McGraw-Hill, New York

Equity Management: Quantitative Analysis for Stock Selection, First Edition, 2000 (Authorized Chinese Translation from English Language Edition Published by McGraw-Hill, China Machine Press, 2006)


As principals of Jacobs Levy Equity Management, Bruce Jacobs and Ken Levy have devoted 30 years to state-of-the-art research into security pricing, portfolio construction, and sophisticated trading techniques. Their groundbreaking work on disentangling return regularities, engineering portfolios to performance benchmarks, and long-short investing, including integrated long-short optimization and portfolio optimization with leverage aversion, has been featured at professional forums such as the Chartered Financial Analysts Institute's Continuing Education Seminars and in the pages of Institutional Investor and the Wall Street Journal.

In the 1980s, Jacobs and Levy began to publish a series of articles articulating the investment philosophy that had emerged from their research. These articles appeared in the peer-reviewed Financial Analysts Journal, Journal of Portfolio Management, and Journal of Investing, as well as in practitioner-oriented publications such as Pensions& Investments. They helped to change the course of modern money management by demonstrating that the supposedly efficient equity market offered recurring profit opportunities that could be identified and exploited to provide consistent outperformance.

Jacobs and Levy's seminal insight is that U.S. equity market returns are driven by complex combinations of company fundamentals, macroeconomic conditions, and behavioral factors, and that these effects can be detected with the use of extensive modeling grounded in intuitive and theoretically plausible relationships. Exploiting these relationships requires simultaneous analysis of numerous variables across a broad and diverse range of stocks; portfolio optimization and performance attribution systems that are customized to the security selection process; sophisticated trading techniques; and creative research.

The articles abstracted here are grouped into six sections that cover the range of research at Jacobs Levy Equity Management. The articles abstracted under “Security Selection” focus on the U.S. equity market as a complex system and some of the methods that can best be used to “disentangle” that complexity. Those listed under “Plan Architecture and Portfolio Engineering” touch on the scope of the security selection/portfolio construction problem, the goal of portfolio management, and the place of an individual portfolio within the investor's overall investment scheme. The articles abstracted under “Long-Short Investing” discuss the construction of portfolios, including market neutral long-short and enhanced active 120-20 portfolios that take advantage of short selling to expand investment opportunities and enhance performance. “Portfolio Optimization, Short Sales, and Leverage Aversion” covers articles that examine general and specific issues that arise when constructing portfolios that contain both long and short positions or use other forms of borrowing. “Market Simulation” delves into a new area of research—the modeling of financial markets using the asynchronous-time JLM Market Simulator. The sixth section, “Market Crises,” covers much of the work that Bruce Jacobs has done on uncovering the factors behind recent episodes of market instability, including the 1987 global equity crash, the 1998 collapse of the giant hedge fund Long-Term Capital Management, and the economic turmoil stemming from the 2008 mortgage-related credit crisis.

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