The Sophisticated and the Simple: The Profitability of Contrarian Strategies from a Portfolio Manager’s Perspective

Abstract

Valuation signals have been among the most popular between equity portfolio managers. Given the large variation of techniques and theories with regard to how value is measured, this study investigates the efficacy of alternative value measures. We consider a cross section of simple and sophisticated alternative measures and focus on comparison metrics of primary interest to equity portfolio managers. Our results show that sophisticated valuation models are superior – although not universally – relative to simple valuation models in many respects. Thus, we conclude that sophisticated models have interesting attributes and, in general, should be considered as an additional if not primary perspective on equity valuation and portfolio management.

Keywords: Capital markets, Valuation, Market efficiency, Portfolio Strategies

JEL Classification: G11, G12, G14, M41