Returns to Selecting Value Stocks in Australia – The Aby Filters

Our earlier study suggests that there exists specific timing for the two prominent investment styles, value and momentum. We extend our prior research to test and evaluate a tactical style allocation (TSA) model based on the weighted least squares (WLS) technique for global equities over the out-of-sample period from 1994 through 2008. Two TSA style-based portfolios are constructed in this research, namely, a portfolio with the risk-free proxy (cash component), the global momentum index and the global value index as its constituents, and a portfolio that is comprised of only the global momentum index and the global value index. The optimized portfolios based on the TSA model outperform the MSCI World Index, the global value index and the global momentum index on a risk-adjusted basis over the examination period. The cash component of the style-based portfolio appears to provide necessary protection during financial market crises. The results of our study support the use of the proposed TSA model to perform active style rotation between value stocks and momentum stocks for global equity portfolios.

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Do good fundamentals generate alpha?

Revista de Educação e Pesquisa em Contabilidade (REPeC) ◽

10.17524/repec.v14i2.2394 ◽

2020 ◽

Vol 14 (2) ◽

Author(s):

Luís Chagas ◽

Ricardo Leal ◽

Raphael Roquete

Keyword(s):

Financial Reporting ◽

Risk Premium ◽

International Financial Reporting Standards ◽

Reporting Standards ◽

Value Stocks ◽

Financial Reporting Standards ◽

Stock Portfolios ◽

Significant Coefficient ◽

The Moment

Objective: To verify abnormal risk-adjusted returns in Brazilian stock portfolios formed according to the F-Score that indicates the presence of good fundamentals. Method: The sample has 146 companies per year on average, includes the period of adoption of the International Financial Reporting Standards (IFRS) from July 2008 to June 2018 and uses equally weighted portfolios formed at the end of June of each year with information from the previous year. Results: The high F-Score portfolio showed greater average returns, lower beta, and a positive and significant alpha that disappeared in the sub-period initiating after the full adoption of IFRS. Significant coefficients for the small capitalization risk premium and egalitarian weighting suggest that large companies do not dominate its performance. High and low F-Score portfolios cannot be characterized as value stocks. The low F-Score portfolio displayed a negative and significant coefficient for the moment factor, suggesting persistence of negative returns. Contributions: Portfolios with high F-Score may have less chance of catastrophic returns. The technique can be employed by less sophisticated investors to build defensive portfolios of companies with good fundamentals.

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Good News for Value Stocks: Further Evidence on Market Efficiency

10.3386/w5311 ◽

1995 ◽

Cited By ~ 18

Author(s):

Rafael La Porta ◽

Josef Lakonishok ◽

Andrei Shleifer ◽

Robert Vishny

Keyword(s):

Market Efficiency ◽

Good News ◽

Value Stocks

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Financial Reporting Quality, Investment Horizon, and Institutional Investor Trading Strategies

The Accounting Review ◽

10.2308/accr-52202 ◽

2018 ◽

Vol 94 (3) ◽

pp. 87-112 ◽

Cited By ~ 3

Author(s):

Brian J. Bushee ◽

Theodore H. Goodman ◽

Shyam V. Sunder

Keyword(s):

Financial Reporting ◽

Private Information ◽

Reporting Quality ◽

Trading Strategies ◽

Financial Reporting Quality ◽

Investment Horizon ◽

Investment Strategies ◽

Holding Costs ◽

Value Stocks ◽

Fundamental Value

ABSTRACT This paper provides evidence that financial reporting quality (FRQ) influences the holding costs of trading strategies. While prior research has focused on the benefits of investment strategies based on poor FRQ (i.e., larger returns due to a greater amount of private information), we examine whether poor FRQ imposes greater holding costs on certain trading strategies. We show that poor FRQ motivates sophisticated investors with short-term horizons to tilt their portfolios away from value stocks, whose returns are contingent on investors revising their beliefs about firm fundamental value, and toward past winner stocks, whose future returns are realized more quickly. Poor FRQ also increases the length of time that institutions maintain large positions in value stocks. Our results imply that mis-valuations can be persistent when arbitrageurs perceive high holding costs from poor financial quality, even when they can see through the opaque financial disclosures.

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Value and growth stocks in Brazil: risks and returns for one - and two-dimensional portfolios under different economic conditions

Revista Contabilidade & Finanças ◽

10.1590/s1519-70772011000200005 ◽

2011 ◽

Vol 22 (56) ◽

pp. 189-202 ◽

Cited By ~ 1

Author(s):

Leandro da Rocha Santos ◽

Roberto Marcos da Silva Montezano

Keyword(s):

Risk Analysis ◽

Stock Market ◽

Stock Prices ◽

Risk Measure ◽

Academic Research ◽

Efficient Market Hypothesis ◽

Economic Conditions ◽

High Price ◽

Value Stocks ◽

Growth Stocks

For empirical purposes, value stocks are usually defined as those traded at low price-to-earnings ratios (stock prices divided by earnings per share), low price-to-book ratios (stock prices divided by book value per share) or high dividend yields (dividends per share divided by stock prices). Growth stocks, on the other hand, are traded at high price-to-earnings ratios, high price-to-book ratios or low dividend yields. Academic research so far produced, international and Brazilian alike, shows that value stocks outperform growth stocks, challenging the Efficient Market Hypothesis, which states that the market prices of traded stocks are the best estimate of their intrinsic values. Most studies use a single ratio to sort stocks on percentiles; risks (generally defined as beta or standard deviations) and returns are then calculated for the resulting value and growth portfolios. In the present paper, we aim to further contribute to the growing literature on the field by applying a method not previously tested on the Brazilian market. We build portfolios sorted by the price-to-earnings and price-to-book ratios alone and by a combination of both in order to assess value and growth stocks' risks and returns on the Brazilian stock market between 1989 and 2009. Furthermore, our risk analysis may be regarded as the paper's main contribution, since its approach departs from conventional risk concepts, as we not only test for beta: portfolios' returns are measured under different economic conditions. Results support a pervasive value premium in the Brazilian stock market. Risk analysis shows that this premium holds under every economic condition analyzed, suggesting that value stocks are indeed less risky. Beta proved not to be a satisfactory risk measure. Portfolios sorted by the price-to-earnings ratio yielded the best results.

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