How are the CAPS Stock Ratings Performing in 2009?
Somebody posted a blog post today asking this question, and I realize that I haven't posted a CAPS Ratings performance update for several months.
CAPS Ratings Quintiles
Each rating quintile is treated as an index and measured over the time series. To use the 5-star stocks as an example, we are NOT looking at stocks that recently achieved 5-star status and looking at their TTM returns. We ARE measuring the performance of stocks that have already achieved 5-star status over a time series. That is to say, on 1/07, all stocks that had achieved 5-star status are included in the 5-star index. Throughout the time series, stocks would be added or removed from the 5-star index depending on whether they crossed into or below the 5-star rating threshold. In this model, each quintile index is rebalanced every day so that positions are equal weighted.