Why US Investing Differs a Lot from Europe Investing...

Abstract

We compare European Indices (DJ Stoxx 600, Eurostoxx 50, FTSE 100) to US Indices (Russell 2000, S&P 500, Nasdaq Composite, Nasdaq 100) and Japanese Indices (Topix, Nikkei225).

First, from 2014, December 31st to 2015, November 11th. Using a longer period could lead to wrong conclusions given the important turnover of the components within each index (roughly 5% per year), and the death-survivorship bias.

Therefore, in a second attempt, we compare the behavior of the large indices such as Topix, Nasdaq Composite and Russell 2000, year after year, from 1999 to 2015. We do the same analysis for DJ Stoxx 600, even if the sample seems tight. Why year after year and not the 16 years in a row? Because turnover is huge on US indices, and the Russell 2000 or Nasdaq Composite composition as of 2015 is very different from the one as of 1999…

Conclusions vary a lot, and explain this article’s title.

Once again, we do not want to look at fundamental (and useless because static) data such as PER, but only on easy to watch data: capitalization, historical volatility, sectors. We decided to investigate patterns through the median rather than through the mean because the median is less sensitive to outliers (and there are many) than the mean.

It is worth to mention that the main part of that sample is composed by capitalization-weighted indices, whereas Nikkei225 is the only index to be price-weighted.

In the following development, performances are always total-return.

Keywords: Momentum investing, Factor investing, Fundamental investing, Europe, US, Japan, Stock-picking