The combination of momentum and value strategies on the Russian stock market - Дипломная работа

Seven out of nine funds showed long-term double-digit outperformance over the market average. Even the pension funds demonstrated 5 per cent to 8 per cent return above the market. Oppenheimer (1984) chose companies listed on AMEX and NYSE from 1974 to 1981 using Graham’s criteria and concluded that an investor who had applied Graham’s criteria would have gained annualized return of 38 per cent versus 14 per cent of the CRSP Index of NYSE-AMEX. Chan, Hamao, and Lakonishok (1991) documented a strong value premium in Japan. Chen and Zhang (1998) reported that value stocks offer reliably higher returns in the US, Japan, Hong Kong and Malaysia. They assumed that when the market is on the rise momentum strategy works, whereas when market declines contrarian strategy prevails. Original testing of momentum strategy was performed on American data. Successful results of testing have drawn attention of many researchers. One more direction of empirical researches is search of inter countries relations in profitability of momentum strategy. In particular, Rouwenhorst (1998) found confirmation that momentum strategy works in twelve European markets: Germany, France, Italy, Denmark, Belgium, Netherlands, Norway, Sweden, Switzerland, Austria, Spain and the UK during 1980-1995 period. Researchers Bekaert, Erb, Harvey, and Viskanta (1997) tested various trading strategies including momentum in emerging markets and came up with a conclusion that the strategy does not work. Therefore, if we stick to the point of view that the phenomenon is raised by various risks, these risks have to be at the level of the certain state. However, these risks are not revealed as the main macroeconomic indicators and cannot explain the difference in profitability. Momentum strategy like any other one has a number of limitations. In general, most of the time this strategy outperforms the results of investing in undervalued stocks and passive investing, but there is empirical evidence indicating relation of momentum returns with market condition, seasonality, liquidity and company size. A. Maslovskaya (2013) researched liquidity as a source of profitability of momentum strategy in Russian stock market. Thus, an investor can predict the dynamics of stock price and build winner strategy if he knows what type of momentum/value the stock is. Finally, he concluded, although momentum investing (taking long and short positions) demonstrates positive return for all variations of value stock selection, momentum stocks that have the highest P/B result in the highest statistically significant return of 1,47% per month. Investment based on stock selection with low P/B also brings positive return, but in order to maximize the gain it is necessary to invest in stocks with poor momentum for previous 12 months. Such strategy of portfolio construction results in statistically significant average monthly return of 0.97%. C. Asness summarized that momentum investing works better when stocks are already expensive, stocks that have high P/E or P/B ratios, stocks which are not suitable for value investors. On the other hand, value investing results in higher return if apply the strategy on stocks with poor past 12 month performance. The relation between value and momentum effects appears to be a strong one. These results apply directly to implementing quantitative investment strategies. The interpretation of these results will be the topic for future debate in a research Value and Momentum Everywhere. The authors study the returns to value and momentum strategies jointly across eight diverse markets and asset classes: global individual stocks across four equity markets: U.S., U.K., continental Europe (excluding the U.K.), and Japan; Global Equity Indices consisting of the following 18 developed equity markets: Australia, Austria, Belgium, Canada, Denmark, France, Germany, Hong Kong, Italy, Japan, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, U.K., and U.S; the following 10 currencies: Australia, Canada, Germany (spliced with the Euro), Japan, New Zealand, Norway, Sweden, Switzerland, U.K., and U.S.; global Government Bonds (Australia, Canada, Denmark, Germany, Japan, Norway, Sweden, Switzerland, U.K., and U.S.); 27 different commodity futures. To measure value and momentum, they use the common value signal of the ratio of the book value of equity to market value of equity, or book-to-market ratio, and for momentum, they use the common measure of the past 12 month cumulative raw return on the asset skipping the most recent month’s return, MOM2-12. The conclusion of the Asness, et al. research is that the negative correlation between value and momentum strategies in addition with their high expected returns build a simple strategy of equally weighting a portfolio with value and momentum stocks which was found out to be a powerful strategy that produces higher cumulative long term rates of return than either value or momentum alone across all studied classes