ACCT421

Analytics for Value Investing

Detailed Course Outline
Term 2 AY2019-20

Instructor and Contact Information

Dr Andrew LEE Phone: +65 6828-0612

Associate Professor of Accounting Practice Email: andrewlee@smu.edu.sg
School of Accountancy
Level 5, Room 5037

Course Pre-requisites

The pre-requisites for this course are:

STAT101/COR-STAT1202 Introductory Statistics or STAT151 Introduction to Statistical Theory;

and
FNCE101 Finance or a grade of ‘A-’ or higher in FNCE103 Finance for Law;
and
ACCT224 Financial Reporting & Analysis or ACCT201 Corporate Reporting & Financial Analysis.

Prior knowledge of Python programming (e.g. attained from IS111 Introduction to Programming), while
useful and advantageous, is not required, as it will be taught in this course.

Course Description

This course examines quantitative models and techniques used by securities analysts and investment
managers to identify and interpret patterns in accounting and other financial data for making value-based
fundamental investing decisions. The course will discuss extant research evidence on value investing
strategies over the past decades. Students will then learn to develop their own quantitative strategies, in
the context of a value-based investing framework, to predict financial performance and distress risk of
companies as well as to uncover securities that can potentially generate superior investment returns.

The course will involve developing algorithmic models and programming code to analyze large-scale
financial data, drawing inferences from statistical results, and back-testing the models for their predictive
power. The advantages and pitfalls of such models—including issues of data selection, and behavioral and
institutional biases—will also be discussed. The skills taught would be useful for students intending to
pursue a career in securities analysis, investment management, or financial advisory.

Learning Objectives and Skills Development

This course contributes to the development of the following learning objectives of the BAcc program:

Learning Objective 1.2 – Our students can analyze, synthesize and evaluate financial and other related
information for decision making in a management context.

Learning Objective 2.1 – Our students understand and can apply business concepts and principles.

Beyond just technical competencies, this course also seeks to develop your:

 analytical and communication skills;

 ability to work in groups;
 ability to engage in active learning; and
 awareness of ethical and professional integrity considerations.

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Course Advisory

This course is listed as an Accounting Option (AO) under the BAcc program. However, it is open to all
BAcc students as well as students pursuing other majors in SMU where this course is cross-listed.

This course is multi-disciplinary in approach—encompassing areas such as accounting, computer

programming, corporate finance, financial markets, financial statement analysis, psychology, statistical
modeling and analysis, and securities valuation. The course will focus on equities as an asset class. A fair
amount of reading and study of journal articles and research papers related to the course is expected.

The Python programming language will be used throughout this course. Prior knowledge of Python,
while useful, is not required as it will be taught in this course. However, the emphasis of this course is
not on programming per se but on statistical modeling and analysis of accounting and other financial data
as well as the application of quantitative models to value investing.

The course will be delivered on a relatively unstructured format with significant hands-on emphasis on
individual and group work. Students are likely to benefit most from this course if they:
 have a good foundation in accounting, finance, statistics, and mathematics;
 enjoy undertaking hands-on exploratory learning on their own, instead of simply trying to seek “model”
solutions from others;
 take a keen interest in news and developments relating to global financial markets;
 have an aptitude for intellectual inquiry and curiosity.

Texts and Other Resources

There are no compulsory textbooks to purchase for this course. Below is a list of pre-course readings,
recommended texts and required readings of articles and research papers.

All required readings of articles and research papers are examinable. Links to these readings (available
from SMU Library e-Journals database) will be posted on eLearn for your download.

The appendix at the end of this course outline contains a list of further references and readings which
you may find useful—however, these further readings are optional and not examinable.

Pre-course readings:
(Available from SMU Library e-Journals database—SMU login required)

 “Fintech: Search for a super-algo,” The Financial Times, January 21, 2016.
 “The Making of the World’s Greatest Investor,” The Wall Street Journal, November 2, 2019.

Recommended texts:

Gray & Carlisle (2013): Wesley R. Gray, Tobias E. Carlisle, “Quantitative Value: A Practitioner’s Guide to
Automating Intelligent Investment and Eliminating Behavioral Errors,” (2013), Wiley. (Loanable as course
reserve text from SMU Library; eBook and print versions also available for purchase at SMU Booklink.)

Hastie et. al. (2008): Trevor Hastie, Robert Tibshirani, Jerome Friedman, “The Elements of Statistical
Learning: Data Mining, Inference, and Prediction,” (2008), Springer. (PDF version downloadable at
https://web.stanford.edu/~hastie/Papers/ESLII.pdf)

Lutz (2013): Mark Lutz, “Learning Python,” 5th Edition (2013), O’Reilly Media.

McKinney (2018): Wes McKinney, “Python for Data Analysis: Data Wrangling with Pandas, Numpy, and
IPython,” 2nd Edition (2018), O’Reilly Media.

Shmueli et. al. (2020): Galit Shmueli, Peter Bruce, Peter Gedeck, Nitin Patel, “Data Mining for Business
Analytics: Concepts, Techniques and Applications in Python,” (2020), Wiley.

ACCT421 Term 2 2019-20 (Prof Andrew Lee) – revised 02.01.2020 Page 2

Required readings—Articles and research papers:
(These readings will be discussed in class and are examinable. Links to readings will be posted on eLearn.)

Fama & French (1992): Eugene F. Fama, Kenneth R. French, “The cross-section of expected stock
returns,” Journal of Finance, Vol. XLVII No. 2, June (1992), pp.427-465.

Novy-Marx (2013): Robert Novy-Marx, “The other side of value: The gross profitability premium,” Journal
of Financial Economics, Vol. 108 (2013), pp.1-28.

Piotroski (2000): Joseph D. Piotroski, “Value investing: The use of historical financial statement information
to separate winners from losers,” Journal of Accounting Research, Vol. 38 Supplement (2000), pp.1-41.

Shleifer & Summers (1990): Andrei Shleifer, Lawrence H. Summers, “The noise trader approach to
finance,” Journal of Economic Perspectives, Vol. 4 No. 2, Spring (1990), pp.19-33.

Python Programming

The Python programming language (version 3.7) will be used throughout this course. Students are required
to have Python 3.7 (either Windows or Mac version) installed on their laptops. Guidance on installation will
be provided during Week 2 class. You are encouraged to bring your laptop to class each week (especially
during coding weeks). You are free to use any Python IDE (integrated development environment) that you
wish. To facilitate teaching, however, I will be using the Spyder IDE on Anaconda in class.

If you are a complete newbie to computer programming, I recommend that you watch the following
YouTube channel on Python programming to get started on understanding some basic concepts:

 Python Tutorial for Absolute Beginners by CS Dojo (especially Tutorials #1 through #8 as well as #12
and #13, which are about 2 hours in total duration) –
https://www.youtube.com/watch?v=Z1Yd7upQsXY&list=PLBZBJbE_rGRWeh5mIBhD-hhDwSEDxogDg.

Assessment

The assessment components for this course are:

Class Participation 15%

Individual Assignment 10%
Mid-term Test 15%
Group Project 25%
Final Exam 35%
Total 100%

Brief requirements of each assessment component as well as a lesson plan are provided below. Further
details will be provided as the term progresses.

Class Participation (15%):

Class participation will be assessed substantially on the quality of your contribution in class as well as your
behavior in class and attitude towards learning. It is in your interest that you display your name placard in
class every week. While you are also encouraged to ask me any questions or consult me at any time during
the term, such consultation after class or outside of class do not count as class participation.

Quality and insightful contributions will earn you much more credit than mere noises. Consistent and
constructive contributions that are accompanied by mature, collegial and respectful behavior in class will
be highly rewarded. Conversely, inconsiderate, disruptive or insolent behavior in class (including disruptive
chatting that distracts me or the class) will be severely penalized.

Mature, collegial and respectful behavior includes abiding by SMU CIRCLE values of commitment,
integrity, responsibility, collegiality, leadership and excellence.

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Individual Assignment (10%):

You will be individually assessed on one homework assignment. The assignment involves writing Python
code to perform statistical tests and analysis on financial data.

The individual homework assignment is due at the end of Week 5, 11:00 pm, 9 Feb (Sun)—see Lesson
Plan below. The individual assignment must be based exclusively on each student’s own personal work.
Students found copying or plagiarizing other students’ work, or outsourcing work to others, will be penalized
and will be awarded zero mark for the assignment. Depending on the seriousness of the offence, further
disciplinary action may also be taken.

Mid-term Test (15%):

The term test will be held in-class in Week 7, 20 Feb (Thurs)—see Lesson Plan below.

The test will be closed-book—however, all mathematical/statistical equations and formulas as well as all
sample Python programming codebase will be provided in the test. Calculators are allowed, but laptops
and all other communication devices are not allowed.

Group Project (25%):

You are free to form your own project groups. Each group should comprise only 3 or 4 students. While I
generally leave it to you to form your own groups, I reserve the right to re-allocate students to specific
groups if necessary.

Registration of project groups will open on eLearn at the start of term. Please register your groups early.

The group project involves developing a quantitative investment strategy, including collecting financial data,
designing the strategy, developing trading signals, writing Python code to analyze and test the signals, and
presenting the results and findings of your strategy. Further details will be provided at the start of the term.

Project deliverables required to be submitted include all Python codebase and data files, a written report,
and a set of presentation slides. All project deliverables must be submitted via eLearn by 5:00 pm, 1 Apr
(Wed)—see Lesson Plan below.

Each group is required to make a presentation of their project in class during Week 13. Depending on the
number of project groups, I will assign groups to clusters and announce the presentation schedule of the
clusters later, which will be held on 2 Apr (Thurs) from 3:30pm through 10:00pm. The extended hours
is to ensure that each group has adequate time to present their project.

All work for the group project is to be performed exclusively by members of the group and all group
members must contribute their fair share to the project work. Each student may be required to submit,
together with the project report, a statement of declaration describing his/her share of the project work.

I view very seriously any plagiarism of work, research studies or results done elsewhere or previously by
others as well as any attempt to falsify data or results for the individual assignment and group project.
Offenders will be penalized, and depending on the seriousness of the offence, further disciplinary action
may also be taken.

Final Exam (35%):

The final written exam will be held on the date and time as scheduled by the SMU Registrar Office. The
exam will be three-hour, cumulative and closed-book—however, all mathematical/statistical equations and
formulas as well as all sample Python programming codebase will be provided in the exam. Calculators
are allowed, but laptops and all other communication devices are not allowed.

No questions verbatim from past year exam papers or published test banks will be used for the graded
continuous assessments and final exam in the course.

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Lesson Plan

The lesson plan below may be revised from time to time. Any changes will be announced in class and on
eLearn—please login to eLearn regularly to check for updates. Lesson materials will be progressively
posted on eLearn prior to each class session.

Week Date Topic References

1 9 Jan Introduction and Course Admin. Shleifer & Summers

Theories of financial markets. (1990)

2 16 Jan Review of Probability and Statistics. Hastie et al (2008)

Introduction to Python programming.

3 23 Jan Workshop on use of SMU Library financial databases. Hastie et al (2008)

Statistical modelling and applications in Python (Part I).

4 30 Jan Statistical modelling and applications in Python (Part II). Hastie et al (2008)

5 6 Feb Measuring investment performance. MSCI (2013)

Factor investing.

Individual assignment due 11:00 pm, 9 Feb (Sun).

6 13 Feb Financial statement analysis and security valuation.

Value investing—Principles and Practice.

7 20 Feb Mid-term Test (in-class).

Investment strategy development & testing (Part I). Gray & Carlisle (2013)

8 RECESS (No class).

9 5 Mar Investment strategy development & testing (Part II). Fama & French (1992)
Research paper discussion.

10 12 Mar Research paper discussion. Piotroski (2000)

Novy-Marx (2013)

11 19 Mar Time series models in investing.

12 26 Mar Machine learning models in investing. Hastie et al (2008)

13 2 Apr All group project deliverables must be submitted via

eLearn by 5:00 pm, 1 Apr (Wed).

Group Project Presentations (in-class):

3:30pm – 10:00pm (presentation schedules TBA)

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Academic Integrity

All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication, facilitation
of acts of academic dishonesty by others, gaining unfair advantage, unauthorized possession of exam
questions, or tampering with the academic work of other students) are serious offences. All work (whether
oral or written) submitted for purposes of assessment must be the student’s own work. Penalties for
violation of the policy range from zero marks for the component assessment to expulsion from the
University, depending on the nature of the offense.

When in doubt, students should consult the instructors of the course. Details on the SMU Code of Academic
Integrity may be accessed at https://oasis.smu.edu.sg/Pages/DOS-WKLSWC/UCSC.aspx. In addition,
SMU CIRCLE values will be rigorously upheld throughout this course – please review the CIRCLE values
at http://www.smu.edu.sg/smu/about/university-information/vision-and-mission.

Use of SMU Library resources

All resources of the SMU Library—including all books, journal articles and research papers, media articles,
and all data from the Library financial databases—are protected by copyright law and are made available
to you strictly for your personal use and reference as an enrolled student of this course only.

You are strictly prohibited from making or distributing copies of any of these resources to anyone, whether
in print or through any electronic media. All data downloaded from the Library databases are also for your
personal use as an enrolled student in this course only. You are strictly prohibited from using or distributing
any such data outside of this course or for any commercial purpose. Penalties for violation range from “F”
grade for the whole course to expulsion from the University, depending on the nature of the offence.

Copyright Infringement

Please note that you are not permitted to make or circulate copies of the course materials or any parts
thereof. The prohibited act of “making copies” of these materials shall mean any reproduction of the same,
including making reprographic or electronic copies; and in the case of electronic materials, the printing of
additional copies. The sale, circulation or uploading on any website of these materials and/or any copies
thereof is strictly prohibited under Singapore copyright laws.

All students are subject to Singapore copyright laws and must adhere to SMU’s procedures and
requirements relating to copyright. Both printed materials and electronic materials are protected by
copyright laws. Students who infringe these requirements will be liable to disciplinary action by the
University and may leave themselves open to prosecution by individual copyright owners, as copyright
owners are entitled to take legal action against persons who infringe their copyright.

Accessibility

SMU strives to make learning experiences accessible for all. If you anticipate or experience physical or
academic barriers due to disability, please let me know immediately. You are welcome also to contact the
University’s disability services team at included@smu.edu.sg if you have questions or concerns about
academic provisions. Please be aware that the accessible tables in our seminar rooms should remain
available for students who require them.

SMU Emergency Preparedness for Teaching and Learning (EPTL)

As part of emergency preparedness, instructors may conduct lessons online via the WebEx platform during
the term, to prepare students for online learning. During an actual emergency, students will be notified to
access the WebEx platform for their online lessons. The class schedule will mirror the current face-to-face
class timetable unless otherwise stated.

Prepared: Andrew Lee, 10 Oct 2019

Vetted: Seow Poh Sun, 17 Oct 2019
Revised: Andrew Lee, 2 Jan 2020

ACCT421 Term 2 2019-20 (Prof Andrew Lee) – revised 02.01.2020 Page 6

 Appendix

FURTHER REFERENCES AND READINGS

(optional; not examinable)

Texts

Graham (1973): Benjamin Graham, “The Intelligent Investor,” Revised Edition (1973), HarperCollins.

Greenwald et. al. (2004): Bruce Greenwald, Judd Kahn, Paul Sonkin, Michael van Biema, “Value Investing:
From Graham to Buffett and Beyond,” (2004), Wiley. (Loanable as course reserve text from SMU Library.)

James et. al. (2013): Gareth James, Daniela Witten, Trevor Hastie, Robert Tibshirani, “An Introduction to
Statistical Learning,” (2013), Springer. (Free PDF version can be downloaded at http://www-
bcf.usc.edu/~gareth/ISL/ISLR First Printing.pdf)

O’Shaughnessy (2011): James O’Shaughnessy, “What Works on Wall Street: The Classic Guide to the
Best-Performing Investment Strategies of All Time,” 4th Edition (2011), McGraw-Hill.

Articles and research papers

Ballings et. al. (2015): Michel Ballings, Dirk Van den Poel, Nathalie Hespeels, Ruben Gryp, “Evaluating
multiple classifiers for stock price direction prediction,” Expert Systems with Applications, 42, (2015),
pp.7046-7056.

Beneish, Lee & Nichols (2013): Messod D. Beneish, Charles M.C. Lee, D. Craig Nichols, “Earnings
manipulation and expected returns,” Financial Analysts Journal, Vol. 69 No. 2, (2013), pp.57-82.

Black (1986): Fischer Black, “Noise,” Journal of Finance, Vol. XLI No. 3, July (1986), pp.529-543.

Campbell et. al. (2008): John Y. Campbell, Jens Hilscher, Jan Szilagyi, “In search of distress risk,” Journal
of Finance, Vol. LXIII No. 6, December (2008), pp.2899-2939.

DeBondt & Thaler (1985): W.F. DeBondt and R.H. Thaler, “Does the stock market overreact?” Journal of
Finance, 40, (1985), pp.793–805.

Frazzini et. al. (2018): Andrea Frazzini, David Kabiller, Lasse H. Pedersen, “Buffett’s alpha,” Financial
Analysts Journal, Vol. 74 No. 4 (2018), pp.35-55.

Holthausen & Larcker (1992): Robert W. Holthausen, David F. Larcker, “The prediction of stock returns
using financial statement information,” Journal of Accounting & Economics, Vol. 15, (1992), pp.373-411.

Kok, Ribando & Sloan (2017): U-Wen Kok, Jason Ribando, Richard Sloan, “Facts about formulaic value
investing,” Financial Analysts Journal, Vol. 73 No. 2, (2017), pp.81-99.

Lopez de Prado (2018): Marcos Lopez de Prado, “The 7 Reasons Most Machine Learning Funds Fail,”
QuantCon 2018. (Youtube video: https://www.youtube.com/watch?v=BRUlSm4gdQ4&feature=youtu.be)

MSCI (2013): Jennifer Bender, Remy Briand, Dimitris Melas, Raman Aylur Subramanian, “Foundations of
Factor Investing,” MSCI Research Insights, December 2013.
https://www.msci.com/documents/1296102/1336482/Foundations_of_Factor_Investing.pdf

Fidelity (2016): Darby Nielson, Frank Nielsen, Bobby Barnes, “An Overview of Factor Investing: The merits
of factors as potential building blocks for portfolio construction,” Fidelity Investments, 2016.
https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/fidelity/fidelity-overview-of-factor-
investing.pdf

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