Stockholm School of Economics

Advanced Investment Management-4106

Spring of 2002

Andrei Simonov

Study questions for the NUMERIC INVESTORS L.P. case

The purpose of a case is to challenge you to identify the key issues of the decision situation at hand. Here are a few pointers:

• What is Numeric's investment strategy?

• How does the long/short strategy work? Is it more risky than a long only strategy? How does the momentum strategy work? How does the value strategy work?

• Analyze the transactions of April 29, 1997. How and why are these representative of Numeric's general investment strategy?

• How does the investment process at Numeric differ from that of more traditional fund managers?

• How does Numeric Investors monitor and control transactions costs? Was Numeric's decision to close products to new investment justified?

• Is Numeric truly taking advantage of market inefficiencies or are they being rewarded for some systematic risk? For example by adding liquidity to the market or being long a momentum factor?

 Point of the case: analyze the merits of active portfolio management based on quantitative techniques. Hedge funds. Day-trading. Interaction between analysts recommendations and trading decisions

 Please, do not answer these questions one by one. Instead, use them only as ways to prime your own analysis. You may then organize and draft your results in whichever way you see fit. If you feel that you have to make any assumptions, please do it by stating them clearly in your report.  I expect the report to be no longer than 7 pages + Excel spreadsheets (if necessary). I would appreciate 12pt font.