Value Premium

…evidence from German stocks supports belief in the pervasiveness of a momentum effect and perhaps a value premium, but not market beta and size effects. Any sentiment effect is likely weak, specific to susceptible stocks and concentrated in intervals after very low sentiment.

…a simple style momentum strategy implemented with ETFs may perform well compared to the overall stock market and individual style ETFs.

…evidence from very limited data suggests that there may be some systematic differences in seasonality among size and value/growth ETFs, but the combination of small sample size and modest magnitude of differences does not support confident belief.

…evidence indicates that investors may be able to exploit gross profits-to-assets as a predictor of individual stock returns, especially within industry. The effect is comparable in magnitude and complimentary to book-to-market, such that combining them is especially powerful.

…evidence indicates that many (but not all) well-known stock return anomalies derive their profitability from short positions in firms with low credit ratings during deteriorating credit conditions, with shorting constraints and illiquidity limiting exploitation.

As a value investor, Mohanram’s study is somewhat comforting.

There is a stream of research that indicates three phases of price dynamics in equity markets, reaction – momentum – reversion, that operate over different horizons…

…evidence suggests that book-to-price ratio and earnings yield explain future stock returns better jointly than individually by more completely anticipating future earnings growth.

…evidence from narrow portfolios (top 30 stocks) over a recent short test period indicate that GARP-value-size strategies perform well, with the magic formula (EBIT/EV and ROC combined), EBIT/EV alone and E/P alone excelling.

…investors may be able to achieve abnormal returns by combining value and earnings surprises, with most of the benefit coming from value stocks with positive earnings surprises and positive earnings announcement abnormal returns.

…investors may be able to exploit the value premium more efficiently and completely by defining it using the Enterprise Multiple rather than the book-to-market ratio.

…value-beta and momentum-beta relationships can and recently have reached such extremes that value and momentum strategies may impound untended assumptions about the future market trend.

CXOadvisory.com has not developed any screens or models to implement or replicate this approach.

…a simple test with available data (about eight years) does not support a belief that investors can reliably capture a substantial value premium via style-based ETFs.

…a portfolio that combines value and momentum strategies across global equity markets and other asset classes may offer investors relatively high returns with low volatility.