Developing an Active Equity Investment Strategy Using Quantitative Methods

As an investment manager specializing in quantitative strategies, you are tasked with developing an active equity investment strategy to outperform a benchmark index over the next three years. Your strategy should incorporate a multivariate regression analysis of historical stock performance, factoring in various financial metrics such as earnings growth, price-to-earnings ratios, and market volatility. Additionally, consider the implications of integrating machine learning techniques in identifying mispriced stocks within your equity portfolio.

In your response, detail the steps you would take to construct this strategy, the metrics you would prioritize, how you would validate your model, and the potential risks associated with the quantitative methods utilized. Include specific examples to support your analysis.