Quantitative or momentum-based multi-style rotation? UK experience

The objective of this article is to examine whether short-term variation in the ranking of size and style index returns in the UK equity market is better predictable and exploitable by means of quantitative or momentum style-rotation strategies. Using UK index data, we assess the profitability of a number of long-only and long/short multi-stylerotation strategies based on these two alternative methods. The findings suggest that trading rules based on simple short-term momentum strategies are able to generate higher Sharpe ratios and greater end-of-period wealth at a reasonable level of transaction costs than our quantitatively based trading rules. This result is particularly pronounced among the long-only strategies

Momentum meets value investing in a small European market

In this paper, we investigate two prominent market anomalies documented in the finance literature – the momentum effect and value-growth effect. We conduct an out- of-sample test to the link between these two anomalies recurring to a sample of Portuguese stocks during the period 1988–2015. We find that the momentum of value and growth stocks is significantly different: growth stocks exhibit a much larger momentum than value stocks. A combined value and momentum strategy can generate statistically significant excess annual returns of 10.8%. These findings persist across several holding periods up to a year. Moreover, we show that macroeconomic variables fail to explain value and momentum of individual and combined returns. Collectively, our results contradict market efficiency at the weak form and pose a challenge to existing asset pricing theories.info:eu-repo/semantics/publishedVersio

A New Portfolio Formation Approach to Mispricing of Marketing Performance Indicators: an Application to Customer Satisfaction

There has been a recent debate in the marketing literature concerning the possible mispricing of customer satisfaction. While earlier studies claim that portfolios with attractive out-of-sample properties can be formed by loading on stocks whose firms enjoy high customer satisfaction, later studies challenge this finding. A large part of the disagreement stems from the difficulty of how to actually evaluate mispricing based on the observed portfolio returns. In particular, any portfolio formation method that requires the use of a risk model is open to the criticism of time-varying risk factor loadings due to the changing composition of the portfolio over time. As an alternative, we construct portfolios that are neutral with respect to the desired risk factors a priori. Consequently, no risk model is needed when analyzing the observed returns of our portfolios. Using various ways of measuring customer satisfaction, we do not find any convincing evidence that portfolios that load on high customer satisfaction lead to abnormal returns

A study of data-driven momentum and disposition effects in the Chinese stock market by functional data analysis

We apply a functional data analysis approach to decompose the cross-sectional Fama–French three-factor model residuals in the Chinese stock market. Our results indicate that other than Fama–French three factors, there are two orthonormal asset pricing factors describing the behavioral biases in their historical performances: between winner and loser stocks, and extreme and mediocre-performing stocks, respectively. We explain these two factors through investors’ overreaction, overconfidence and the lead-lag effect. These findings empirically show the existence of momentum and disposition effects in the Chinese stock market. A buy-and-hold mean-variance optimized portfolio incorporating these two market anomalies boosts the Sharpe ratio to 1.27