Developing a Quantitative Equity Investment Strategy

As portfolio manager for a mid-sized asset management firm, you are tasked with developing a quantitative equity investment strategy that could enhance your firm's active equity portfolio. The investment committee has an interest in utilizing a multifactor model to identify undervalued stocks based on specific risk factors and performance metrics.

Discuss the critical components of a successful quantitative equity investment strategy focusing on the following aspects: (1) selection of factors, (2) data sources and quality, and (3) risk management techniques. Additionally, provide examples of how these components work together in a cohesive investment approach. Your response should reflect an understanding of the challenges and advantages of implementing quantitative strategies in active equity investing.