Do Quantitative Country Selection Strategies Really Work?

Journal of Investment Strategies, 2016, 5(2), 1-33.

Posted: 15 May 2015 Last revised: 10 May 2016

See all articles by Adam Zaremba

Adam Zaremba

Poznań University of Economics and Business; Montpellier Business School

Przemyslaw Konieczka

Warsaw School of Economics (SGH)

Date Written: May 14, 2015

Abstract

Our study tests and compares 16 distinct country selection strategies based on inter-market value, size, momentum, quality and volatility effects within a sample of 78 countries for the period 1999-2014. By accounting for country-specific dividend tax rates, market liquidity and openness for investment flows, we design portfolios and assess their performance with asset pricing models. We find that the value strategies based on earnings to price ratio prove useful for investors, while momentum strategies should be approached with caution, as they appear effective only in small markets and may lead to loses in large markets. Selecting low leveraged and illiquid countries also proves profitable. Finally, while the relation between volatility and returns remains strong, it displays different characteristics for open and closed economies. Most return patterns are uneven and abnormal returns result from investments in extreme markets.

Keywords: value, size, momentum, quality, volatility, country-level effects, inter-market effects, cross-section of returns, factor returns, international diversification, asset pricing

JEL Classification: G11, G12, G15

Suggested Citation

Zaremba, Adam and Konieczka, Przemyslaw, Do Quantitative Country Selection Strategies Really Work? (May 14, 2015). Journal of Investment Strategies, 2016, 5(2), 1-33., Available at SSRN: https://ssrn.com/abstract=2606178 or http://dx.doi.org/10.2139/ssrn.2606178

Adam Zaremba (Contact Author)

Poznań University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

HOME PAGE: http://adamzaremba.pl

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000
France

Przemyslaw Konieczka

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

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