Strategies can be expensive too! The value spread and asset allocation in global equity markets

Zaremba, Adam; Umutlu, Mehmet

Abstract

Is the value spread useful for forecasting returns on quantitative equity strategies for country selection? To test this, we examine a sample of 120 country-level equity strategies replicated within 72 stock markets for the years 1996–2017. The value spread is a powerful and robust predictor of strategy returns in the cross-section, subsuming other methods based on momentum, reversal, or seasonality. Going long (short) the strategies with the broadest (narrowest) value spread produces significant four-factor model alphas, markedly outperforming an equal-weighted benchmark of all of the strategies. The results are robust to many considerations.

Citation

Zaremba, A., & Umutlu, M. (2018). Strategies can be expensive too! The value spread and asset allocation in global equity markets. Applied Economics, 50(60), 6529-6546. https://doi.org/10.1080/00036846.2018.1489523

• Journal Article Type: Article
• Online Publication Date: Jul 16, 2018
• Publication Date: Dec 26, 2018
• Deposit Date: Jan 29, 2023
• Journal: Applied Economics
• Print ISSN: 0003-6846
• Electronic ISSN: 1466-4283
• Publisher: Routledge
• Peer Reviewed: Peer Reviewed
• Volume: 50
• Issue: 60
• Pages: 6529-6546
• DOI: https://doi.org/10.1080/00036846.2018.1489523
• Keywords: Value spread, country-level anomalies, country-selection strategies, asset allocation, asset pricing, international investment, return predictability, equity anomalies, the cross-section of returns