Value by Design?

The Journal of Portfolio Management Quantitative Special Issue, 46 (2) 25-43, 2020

DOI: https://doi.org/10.3905/jpm.2019.1.122

Posted: 3 Jun 2020

See all articles by Stephan Kessler

Stephan Kessler

Universität St. Gallen - Swiss Institute of Banking and Finance

Bernd Scherer

EDHEC Business School - Department of Economics & Finance

Jan Philipp Harries

University of Wuppertal - Schumpeter School of Business and Economics

Date Written: November 14, 2019

Abstract

Although academics and practitioners frequently refer in their work to equity value investing, no consensus exists as to what this style exactly encompasses. For a wide range of 3,168 alternative implementations (design choices) of what could all constitute value portfolios, the authors document the impact of parameter perturbations on risk-adjusted returns. The observed dispersion in Sharpe ratios allows the authors to identify the hierarchy of design choices and to better assess the degrees of freedom consumed within the strategy development process. The authors can therefore derive critical t-values that adjust for over-fitting. This will prove to be useful in research governance and strategy selection.

Keywords: Style Investing, Statistical Methods, Asset Pricing, Value Factor, Data Snooping, Risk Premia

JEL Classification: C63, G11, G12

Suggested Citation

Kessler, Stephan and Scherer, Bernd and Harries, Jan Philipp, Value by Design? (November 14, 2019). The Journal of Portfolio Management Quantitative Special Issue, 46 (2) 25-43, 2020, DOI: https://doi.org/10.3905/jpm.2019.1.122, Available at SSRN: https://ssrn.com/abstract=3593557

Stephan Kessler

Universität St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstr. 52
CH-9000 St.Gallen
Switzerland

Bernd Scherer (Contact Author)

EDHEC Business School - Department of Economics & Finance ( email )

France

Jan Philipp Harries

University of Wuppertal - Schumpeter School of Business and Economics ( email )

Rainer-Gruenter-Str. 21
Wuppertal, 42119
Germany
3179 (Phone)

HOME PAGE: http://https://controlling.uni-wuppertal.de/de/team/jan-philipp-harries-dipl-betriebsw-dh.html

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