Attribute Bias

DEFINITION of 'Attribute Bias'

The tendency of stocks selected by a quantitative technique or model to have similar fundamental characteristics, such as high yields and low earnings valuations. Most investing models that provide investment choices as an output will have to establish parameters that, by definition, will exclude certain stocks and offer ones with similar traits in return.

BREAKING DOWN 'Attribute Bias'

An investing or research technique that produces choices with attribute bias is not necessarily a bad thing; the biggest danger is that the stocks may correlate closely in their returns, eliminating some of the value of a diversified portfolio. One thing in particular to watch out for is investing in several companies operating in the same industry, as industry peers will often have similar fundamental values.

RELATED TERMS
  1. Comparables

    A valuation technique in which a recently sold asset is used ...
  2. Model Risk

    A type of risk that occurs when a financial model used to measure ...
  3. Quantitative Analysis

    A business or financial analysis technique that seeks to understand ...
  4. Diversification

    A risk management technique that mixes a wide variety of investments ...
  5. Quantitative Trading

    Trading strategies based on quantitative analysis which rely ...
  6. Hull–White Model

    A single-factor interest model used to price derivatives. The ...
Related Articles
  1. Professionals

    Quantitative Analyst: Career Path & Qualifications

    Learn about the work that quantitative financial analysts do everyday, and determine what it takes to become a successful professional in the field.
  2. Trading Systems & Software

    Build a Profitable Trading Model In 7 Easy Steps

    Trading models can provide a powerful tool for building profit. Traders can use and customize existing trading models or build an original model. This article provides seven steps to building ...
  3. Investing

    Asset Manager Ethics: Acting With Competence and Diligence

    Managers must make investment decisions based on their personal investment process, which in turn should be based on solid research and due diligence.
  4. Entrepreneurship

    Calculating (Small) Company Credit Risk

    Determining creditworthiness of smaller and medium-sized corporations isn't as easy as for larger companies, but these tips can help.
  5. Options & Futures

    Stock-Picking Strategies: Conclusion

    Let's run through a quick recap of the foundational concepts that we covered in our look at the most well-known stock-picking strategies and techniques: Most of the strategies discussed in this ...
  6. Savings

    Teaching Financial Literacy To Teens: Investing

    Many teens are interested in learning about investing, including investment types, risk management and fundamental and technical analysis.
  7. Investing

    Understanding Financial Models

    A financial model is a representation of some aspects of a firm or given security. It uses historical numbers to create calculations that inform financial recommendations or predict future financial ...
  8. Options & Futures

    How To Build Valuation Models Like Black-Scholes (BS)?

    Want to build a model like Black-Scholes? Here are the tips and guidelines for developing a framework with the example of the Black-Scholes model.
  9. Professionals

    Quantitative Analyst: Job Description & Average Salary

    Learn the different job duties of a quantitative analyst and how much money an analyst makes; understand the skills needed to be successful at this career.
  10. Mutual Funds & ETFs

    Introduction To Fundamentally Weighted Index Investing

    If you believe the market smiles on those who focus on value, growth or income, this vehicle may be for you.
RELATED FAQS
  1. What percentage of a diversified portfolio should be exposed to the insurance sector?

    Learn how it is critical to innovate and improve financial models and techniques used in quantitative analysis, and understand ... Read Answer >>
  2. Is it better to use fundamental analysis, technical analysis or quantitative analysis ...

    Understand the difference between fundamental, technical and quantitative analysis, and how each measurement helps investors ... Read Answer >>
  3. When does a growth stock turn into a value opportunity?

    Learn how fundamental analysts use valuation measures, such as the price-to-earnings ratio, to identify when a growth stock ... Read Answer >>
  4. What are some common traits of undervalued stocks?

    There are a few basic factors found in companies that are worth more than their current stock price. Read Answer >>
  5. What is the difference between financial forecasting and financial modelling?

    Understand the difference between financial forecasting and financial modeling, and learn why a company should conduct both ... Read Answer >>
  6. Why are microeconomic models different in the short run than the long run

    Find out why short-run and long-run microeconomic models treat production, costs and variable change using different given ... Read Answer >>
Hot Definitions
  1. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  2. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  3. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  5. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  6. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
Trading Center