Exploiting Value and Momentum in Emerging Market Assets

49 Pages Posted: 30 Jun 2014 Last revised: 21 Nov 2015

See all articles by Georg Cejnek

Georg Cejnek

ZZ Vermögensverwaltung GmbH; Engelbert Dockner Stiftung

Date Written: November 1, 2015

Abstract

The recent empirical literature concludes that characteristics such as value and momentum explain and predict the cross-sectional dispersion of asset returns fairly well. I extend this evidence to Emerging Markets assets by analyzing a comprehensive data set consisting of sovereign bonds denominated in USD, local currency bonds and equity indices. Implementing a parametric portfolio approach allows to assess the conditional information content of value and momentum characteristics, which I construct from past returns. Emerging Market portfolios that exploit the cross-sectional variation in the characteristics outperform an equally weighted Portfolio out-of-sample for all three asset classes as well as for a multi-asset strategy. Furthermore, Sharpe ratios increase substantially and maximum drawdowns are reduced as compared to the naive benchmark. The findings are largely robust to the inclusion of transaction costs. Moreover, I explore the impact of U.S. risk factors on Emerging Market asset returns and show that Portfolios optimized on the basis of value and momentum are not more exposed to U.S. risk than equally weighted benchmarks.

Keywords: Asset Allocation, Value, Momentum, Emerging Markets, Parametric Portfolio Policies

JEL Classification: G11, G12, G15

Suggested Citation

Cejnek, Georg, Exploiting Value and Momentum in Emerging Market Assets (November 1, 2015). Available at SSRN: https://ssrn.com/abstract=2460447 or http://dx.doi.org/10.2139/ssrn.2460447

Georg Cejnek (Contact Author)

ZZ Vermögensverwaltung GmbH ( email )

Coburgbastei 4, Top5
Vienna, 1010
Austria
+43151818934 (Phone)

Engelbert Dockner Stiftung ( email )

Vienna
Austria

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