A hedge fund has lots of data they want to use for back-testing and research, but they need to reconstruct their index-based symbol universe to avoid survivorship bias.
Here’s how DIH fixed their problem…
A 20+ year old global hedge fund with over $2 billion in assets under management and a global headcount of just under 100 employees hired DIH to help them reconstruct an equity symbol universe going back over 20 years that they wished to use for back-testing and research.
The fund trades multiple asset types, with a focus on short-term, systematic trading. They are quantitative in their approach and a very large consumer of various types of data with a sophisticated infrastructure for digesting and analyzing data. Despite ample IT resources, they still have projects they’d like to do, but just don’t have the time/people to do them. So they reached out to DIH.
The universe was based on membership in a particular index. So the hedge fund wanted to know:
- Which stocks have ever been in the universe?
- When were stocks added or removed from the universe?
- If a stock went through a merger/acquisition, what was the surviving stock’s ticker symbol, company name, primary exchange, etc., and is it still trading?
Going forward, which stocks were added, removed, or had changes to their security reference information?
- Finally, they needed all of this information to be mapped back to their internal security master and internal security identifier.
DIH began with an exhaustive research project to determine which stocks had been added or removed from the underlying index, and the date of each change. Next, we needed to determine the current ticker symbol, company name, primary exchange, etc. for each stock. This meant going through all the mergers & acquisitions that have occurred and identifying the surviving entity and stock of each corporate transaction. Did we mention we like tedious data problems?!
Once we had reconstructed when stocks joined or dropped out of the universe, and what the surviving stock was of each merger/acquisition, we mapped this data to our client’s internal security master. We continue to provide monthly updates to our client’s symbol universe, noting additions, deletions, and any changes to the relevant security reference information.