Quant Jocks and Tire Kickers

Quant Jocks and Tire Kickers

December 5, 2013 Research Insights, Behavioral Finance
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(Last Updated On: January 18, 2017)

I just love the title of this paper…

A job market paper for a PhD student (Jane Zhao) who was on the market a few years ago.

Quant Jocks and Tire Kickers: Does the Stock Selection Process Matter?

This paper classifies mutual funds into two groups according to their distinctive stock selection approaches: tire kickers who rely on fund managers’ personal judgment and fundamental analysis to pick stocks, and quant jocks who use computer-based models to select stocks. I examine how the stock selection approach affects mutual fund performance and economies of scale. I document an increasing trend of quantitative techniques used by mutual funds, and some unique characteristics of quant jocks. Quant jocks and tire kickers have similar factor-adjusted alphas, but quant jocks have higher Sharpe ratios. Quant jocks tend to be much smaller than tire kickers. I explore possible explanations for the size difference. I find that although quant jocks can cheaply screen a large universe of stocks, the stocks that quant jocks invest in are smaller and less liquid, which results in higher transaction costs and limited scalability of quantitative investment strategies.


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About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.