A Monthly Book-to-Market Value Factor Long-Short Strategy

Summary

The strategy sorts U.S. stocks by price-to-book ratio to form a value portfolio. Within a universe limited in the implementation to the largest 3,000 stocks by market capitalization, it buys the lowest price-to-book quintile and shorts the highest. The source describes the broader HML factor as averaging separate small-stock and large-stock value portfolios; this implementation instead applies the sort across its selected universe and equally weights positions on each side.

The code schedules selection at month end and adjusts holdings afterward, maintaining fully invested long and short sides, with leverage set for securities. It provides implementation details, including a fee model, but no performance results or comparison. The source describes monthly rebalancing, while the code’s selection flag appears to activate only when its month counter reaches December, so the actual rebalance schedule may differ from the description. The long and short direction follows conventional value logic, though the code’s variable names reflect the reverse price-to-book ordering.

Key ideas

• The strategy buys stocks with low price-to-book ratios and shorts those with high ratios.
• The implementation limits its universe to the largest 3,000 eligible U.S. stocks by market capitalization.
• It divides the sorted universe into quintiles and equally weights the long and short baskets.
• The source describes monthly rebalancing, but the code’s month counter appears to trigger selection only in December.
• No performance evidence is included, and the implementation uses leverage.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.