Strategies can be expensive too! The value spread and asset allocation in global equity markets

Adam Zaremba () and Mehmet Umutlu

Applied Economics, 2018, vol. 50, issue 60, 6529-6546

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.

Date: 2018
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DOI: 10.1080/00036846.2018.1489523

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