The past few years, in my humble opinion, have produced some of the most interesting and practical (which is always nice) empirical finance research in a long, long time. Not surprisingly, a good bit of this research has been co-authored by professors at the University of Chicago (Gene Fama and Toby Moskowitz) or by alumni of the university (Cliff Asness). Over the next few weeks, I’m planning to profile a number of these pieces.
Today, I’m starting with the working paper “Size, Value and Momentum in International Stock Returns” by Fama and Dartmouth College professor Ken French. This paper covers the size, value and momentum premiums in global stock returns. I’ll also discuss a forthcoming Journal of Finance article by Asness, Moskowitz and New York University professor Lasse Pedersen titled “Value and Momentum Everywhere” that covers some of the same ground as the Fama and French piece but also examines value and momentum in other markets including country stock indexes, bonds, currencies and commodities.
The most interesting finding in the Fama and French paper was the consistency of both the value and momentum premiums in global stock markets. They found a positive and sizable value premium in all the regions examined over the period of November 1990 through March 2011. Similarly, they found a sizable momentum premium in all regions examined, save Japan. One other intriguing finding is that the value and momentum premiums appeared to be strongest in small-company stocks and weaker in large-company stocks. On the value side, this is likely partially attributable to the black hole that is small-cap growth stocks, which have generally had unbelievably bad performance in most stock markets.
The Asness, Moskowitz and Pedersen piece found that value strategies not only work in stocks but produced return premiums across country stock indexes, bonds (though not statistically significant), currencies and commodities (though, again, not statistically significant). The authors also found that momentum strategies tended to work well in country indexes, currencies and particularly well in commodities in addition to stocks, where they find results similar to Fama and French’s.
So what do we make of all this? I think the primary takeaway is that value and momentum strategies are incredibly robust effects, on par with the consistency and robustness of the equity premium across various stock markets.
Random Links and Commentary of the Week
Avis, I've had a long day of travel and still have a few miles to go. So what do you have for me?
Big news folks: Step Up Revolution (aka, Step Up 4. Yes, the fourth movie in the Step Up franchise) is coming out this weekend. Seriously, do yourself a favor and watch the trailer. I'm thinking Oscar if they add a category named "Best Film With the Words 'Step Up' in the Title."