When Growth Beats Value: Removing Tail Risk From Global Equity Momentum Strategies

30 Pages Posted: 15 May 2014 Last revised: 28 Feb 2018

See all articles by Andrew Clare

Andrew Clare

City University London - Sir John Cass Business School

James Seaton

City University London - Sir John Cass Business School

Peter N. Smith

University of York - Department of Economics and Related Studies; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Steve Thomas

City University London - Sir John Cass Business School

Date Written: February 27, 2018

Abstract

We investigate the relationship between Value, Growth and two forms of Momentum across a wide range of developed and emerging international equity markets using MSCI total return ‘smart beta’ indices. As would be anticipated, Value generally beats Growth. A distinction is then made between relative momentum where assets are ranked according to their performance against each other, and absolute momentum (sometimes known as trend following) where assets are categorized according to whether they have recently exhibited positive nominal return characteristics. We find that both Value and Growth portfolios benefit from momentum filters but particularly the latter, though they do suffer from familiar equity market volatility, skewness and substantial drawdowns. When we overlay simple absolute momentum on these factor indices, it typically delivers a much more favourable investment performance than relative momentum with considerably lower volatility and smaller drawdowns. Well-known behavioural finance biases help us understand such behaviour.

Keywords: International equity; Value investing; Growth investing; Relative momentum; Trend following; Tail risk

JEL Classification: G0; G11; G15

Suggested Citation

Clare, Andrew D. and Seaton, James and Smith, Peter N. and Thomas, Stephen H., When Growth Beats Value: Removing Tail Risk From Global Equity Momentum Strategies (February 27, 2018). Available at SSRN: https://ssrn.com/abstract=2436825 or http://dx.doi.org/10.2139/ssrn.2436825

Andrew D. Clare

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

James Seaton

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Peter N. Smith

University of York - Department of Economics and Related Studies ( email )

Heslington
York 010 5DD
United Kingdom
+44 1904 433 765 (Phone)
+44 1904 433 759 (Fax)

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Stephen H. Thomas (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 (0) 20 7040 5271 (Phone)
+44 (0) 20 7040 8881 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
1,092
Abstract Views
4,880
rank
19,509
PlumX Metrics