Our comparative analysis for the various model inputs are presented in section Results. The inputs we evaluate and focus on in this paper include our choice of expected returns variable, the use of an alpha alignment factor (AAF) developed by Saxena and Stubbs, and the scope of our investment universe. After testing and analyzing multiple permutations of simulated portfolios, we are able to equip ourselves with the appropriate knowledge to make assessments regarding the efficacy and validity of our model inputs. The specific inputs into our portfolio construction process are discussed in further detail within section Portfolio Construction. We utilize the Axioma Portfolio Optimizer API integrated through FactSet's Portfolio Simulation Module in order to build and run our model portfolios. There are an abundant number of methods to building portfolios, our approach is based on Markowitz optimization. After verifying the efficacy of the chosen stock selection model, the next step is to transfer our given signal into an investable portfolio. A detailed decomposition of our chosen signals can be found in section Stock Selection Models. These variables are designed using FactSet and Thomson Financial global security databases. and the consensus earnings forecasting efficiency variable, CTEF, developed in Guerard. We focus our research on the Global Equity Ratings (GLER) database in Guerard et al. The practitioner must first develop a framework for evaluating and selecting investment opportunities. There are generally multiple layers of investment research that are conducted in order to arrive at a final portfolio. Third, the incorporation of an alpha alignment factor within the portfolio construction process improves risk forecasts resulting in ex-post tracking error aligning more closely to ex-ante, and ultimately improving information ratios. increases the opportunity set yielding higher risk adjusted performance. Second, expanding the investment universe outside the U.S. US, and MSCI Emerging Markets benchmarks which they are measured against. First, GLER and CTEF signals employed as the primary inputs to security selection result in portfolios with superior risk adjusted returns relative to the Russell 3000, MSCI AC World ex. As a result of our research, we present the reader with three key findings. Further, an alpha alignment factor is applied to aid in portfolio construction. Our portfolios are constructed under the Markowitz optimization framework and constrained at various tracking error levels.
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We estimate expected returns using a given global stock selection model employing Global Equity Rating (GLER) and Consensus Temporary Earnings Forecasting (CTEF) signals. In this paper, we explore the ex-post attributes of 120 simulated portfolios across the U.S., International, and Emerging Markets. FactSet Research Systems, San Francisco, CA, United States.