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

See all articles by Adam Zaremba

Adam Zaremba

Montpellier Business School; Poznan University of Economics and Business; University of Cape Town

Mehmet Umutlu

Edinburgh Napier University, The Business School, Accounting and Finance Subject Group

Date Written: 2018

Abstract

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

Zaremba, Adam and Umutlu, Mehmet, Strategies Can Be Expensive Too! The Value Spread and Asset Allocation in Global Equity Markets (2018). Applied Economics, 2018, 50 (60): 6529-6546, Available at SSRN: https://ssrn.com/abstract=3332931

Adam Zaremba (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000
France

HOME PAGE: http://sites.google.com/view/adamzaremba

Poznan University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

University of Cape Town

Cape Town
South Africa

Mehmet Umutlu

Edinburgh Napier University, The Business School, Accounting and Finance Subject Group ( email )

Craiglockhart Campus
Edinburgh, Scotland EH11 4BN
United Kingdom

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