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Research: Investing in Women-led Fortune 1000 Companies

It has been widely reported that companies with women in senior management and on the board of directors perform better than companies without. Credit Suisse’s Gender 3000 report looks at gender diversity in 3000 companies across 40 countries. According to this report, at the end of 2013, women accounted for 12.9% of top management (CEOs and directors reporting to the CEO) and 12.7% of boards had gender diversity. Additionally, “Companies with more than one woman on the board have returned a compound 3.7% a year over those that have none since 2005.”

These kind of reports quickly lead to the question, “What would happen if you invested in companies with female CEOs?”

I've used the research platform to analyze this question, and the results are dramatic. I'd love the community's input and suggestions for ways I can continue to explore this topic.

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.

20 responses

Girl power ;-)

It's going much higher than benchmark but it is far from linear.

There's an ETF for this, and I think some mutual funds as well. I like this idea, same with minority led businesses with the idea that the historic barriers to entry for disadvantaged groups filters to ensure only superstars make it to the upper ranks of business. The is a fundamental attribution error issue though. I think we give CEOs far more credit/blame than they deserve based on what they can actually influence.

The benchmark doesn't look like SPY? is it companies managed by man only?

Hi Lucas,

I believe the benchmark is SPY. The current SPY is being used to create the benchmark graph you see:

data_SPY = get_pricing(['SPY'],  
                       start_date='2002-01-01',  
                       end_date='2015-02-10',  
                       fields='close_price',  
                       frequency='daily')  

And Karen uses data_SPY continuously through the notebook

Disclaimer

The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.

Ho nice, noticed the link to note only now. I had a mental image of 2008 drop a bit more vigorous. Memories are not reliable I guess :)

I would like to see this with all the sector exposures hedged out, that would give a better indication as to the female CEO alpha.

Karen, Nice research :)

Sorry I didn't have the tickers when I posted from my tablet earlier. They are the Barclays Women in Leadership ETN (WIL) and the Pax Ellevate Global Women's Index Fund (PXWEX).

Marissa Mayer at Yahoo/Alibaba stands out...

Actually there are several intriguing tell-tales.

http://i.imgur.com/MPfexQX.png

Here a big png of the returns with the CEO tenure highlighted.

Would investing in such a strategy be sexist?

I think the whole topic borders on the sensitive. And any comment may be misconstrued to be leaning too far into one camp or another. Anyone want to divvy up the other CEOs into ahem, various groups and publish the results? Companies are run by humans. Quantitative analysis, programming and trading are all performed by humans. Exchanges and brokerages, however, are run by sub-humans... That's about the only stereotypical division I'm prepared to contemplate.

http://qz.com/341525

Hi folks, thanks for all the feedback. I've looked into a couple of things based on your suggestions.

First, I calculated the annualized sharpe for the algo. It comes in at 0.66. This isn't great, but for our fund selection process we are looking for sharpes greater than 0.6, and if I were eligible, I'd just sneak in with this! I realized I should compare it to the sharpe of my benchmark, which comes in at 0.30. That makes me feel a bit better about my 0.6! Here is what I did to calculate the sharpe: http://imgur.com/HlcjNYz

Second, I took a look at the PAX and WIL funds and plotted them against the SPY. I could't figure out how to plot them against my algo, but it doesn't much matter. Since 2002, they have both underperformed the SPY. You can see the plot here: http://imgur.com/c3Lm4Lm

This has been a great process for me to learn more about our users and hopefully find ways to improve the research platform before launch. Even in just crafting this response, I've realized we need a way to update a shared notebook!

Hi Karen,

Some free feedback (in exchange for your free tools):

  • Will there be a "Copy/Download/Clone" button for the shared notebooks?
  • I would shy away from adding links for sharing on social media, such as Twitter. This is more of a stylistic choice, since next thing you know, you'll have button clutter (e.g. Twitter, Facebook, LinkedIn, blah, blah, blah,...). If users can write algos, they can share to their favorite site without buttons. Ah! Just saw the buttons at the bottom...good spot..don't include in posts.
  • Regarding updates to posted notebooks, you could consider a revisioning system, so that all revisions could be posted and viewed, with a simple text box associated with each revision, for the author to describe changes (or more formally archive the shared notebook out on Quantopian's github site, but display it on the community forum).
  • As has been pointed out elsewhere by someone else, you should start thinking about how to organize this forum. With notebook sharing coming online, things could get messy. At a minimum, maybe posts could be tagged by the poster (e.g. newbie, notebook, help request), for subsequent filtering by viewers.

Grant

An updated version of this algo can be found here: https://www.quantopian.com/posts/research-an-update-to-investing-in-women-led-companies

This new version includes,

  • Updating the SPY benchmark to reinvest dividends. My previous algo just bought $100,000 at the beginning of the time period and held it until the end. In the example below, I import the benchmark from Quantopian's backtester which takes care of reinvesting dividends. This dramatically changed the results of the benchmark.
  • Adding 4 CEOs that were missing from the original data. These included, Stephanie Streeter of Banta, Paula Rosput Reynolds of Safeco, Dorrit J Bern of Charming Shoppes and Carleton Fiorina of HP.

For those interested in learning more: "Invest in Women" Conference coming up:

http://www.fa-mag.com/conferences/investinwomen/

Stephen

Sorry, but this is really poor research. You have not risk-adjusted your returns nor included any other controls. There are so many other factors that could be accounting for the higher returns. If you sent this to a peer-reviewed journal it would be desk rejected and not even be sent out for review. It's sad that this is being picked up by the media because people are being misled. You haven't done the work to be able to make this point.

Did you calculate the correlation coefficient for diverse board membership and company returns?

Two tough losses in the women CEO category these past two days. First, from the WSJ

DuPont CEO Ellen Kullman Steps Down

and then today:

TJX CEO Carol Meyrowitz to Step Down

both being replaced by men. DuPont shares have taken a huge hit lately and talk is of a subsidiary sale, reflected in a huge bounce in the stock price after the sudden departure of Kullman, so not sure if the women CEO thing is a sell signal for DD, but TJX has been had a huge run-up, outperforming the S&P 500 by a factor of 3X over the past five years. Would you sell TJX and DD expecting under-performance with new (male) leadership? Short-term for DD suggests not.

My guess, DD trades like a company in play and given the horrific commodity markets is sold off piecemeal satisfying big investors. As for TJX, I expect continued out performance relative to SPY, XLY (consumer discretionary) and even XRT (retail) based on TJX's superior fundamentals.