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Macquarie Research turns quant equity research on rugby
Macquarie Research has taken its considerable quantitative talents and put them to work forecasting he Rugby World Cup finals and is finding an unusually high win percentage, one that would make any hedge fund manager salivate.
Quant research approach has delivered an 82.5 percent success rate
With an 82.5 win percentage – correctly forecasting 33 of 40 Rugby World Cup matches – the group looks forward and thinks the New Zealand team continues to be the front runner, while Australia is a big move and Whales still has a good chance of beating South Africa.
The formula considers five variables: Value, momentum, sentiment, quality and home field advantage. While stressing that the purpose of the recommendations is fun, they note that their equity research models incorporate years of research using academic models. “The World Cup model has been put together by a lone team member in their spare time,” they note.
Quant formula defines predictive modeling based on five major categories
In terms of value, the variables the Macquarie Research team uses to determine value includes world ranking and World Cup Match experience. For momentum they select Change in ranking and win percentage over the previous 12 months. For sentiment they consider public odds of winning and change in odds. To determine quality they consider a best result factor and point differential over the last 12 months along with World Cup points. To top off the formula they place a certain mathematical value on home field advantage.
“There were clearly some upsets in the tournament that caught everyone by surprise,” said the report, titled “The Marcquarie Quant Guide to the Rugby World Cup.” Unexpected results that defy past performance expectations are often a point of weakness in quant modeling. “England has been the biggest scalp producing the worst result of a home team ever in a World Cup. Being included in the ‘pool of death’ as the host nation was always harsh (obviously the royal family don’t have the sway they used to) and the pressure ultimately proved too much.”
This is not the first time Macquarie has taken a quant approach to predict sporting events. It did so with Australia’s famous Melbourne Cup horse race in 2014, 2013, 2012, for instance, as well as last year’s Football World Cup in Brazil. “These forecasts do not come without pedigree; Macquarie’s Melbourne Cup model has generated some good performances and the Football World Cup model successfully picked Germany to win last year,” they wrote.
This story first appeared in ValueWalk.