Strategies Can Be Expensive Too! The Value Spread and Asset Allocation in Global Equity Markets
Applied Economics, 2018, 50 (60): 6529-6546
39 Pages Posted: 1 Mar 2019
Date Written: 2018
Is the value spread useful for forecasting returns on quantitative equity strategies for country selection? To test this, we examine a sample of 120 country-level equity strategies replicated within 72 stock markets for the years 1996–2017. The value spread is a powerful and robust predictor of strategy returns in the cross-section, subsuming other methods based on momentum, reversal, or seasonality. Going long (short) the strategies with the broadest (narrowest) value spread produces significant four-factor model alphas, markedly outperforming an equal-weighted benchmark of all of the strategies. The results are robust to many considerations.
Keywords: value spread, country-level anomalies, country-selection strategies, asset allocation, asset pricing, international investment, return predictability, equity anomalies, the cross-section of returns
JEL Classification: G12, G15
Suggested Citation: Suggested Citation