Turn-of-the-Year Effects on Country Stock Market Value and Momentum
June 13, 2016 - Calendar Effects, Momentum Investing, Value Premium
Does the January (turn-of-the-year) stock return anomaly affect value and momentum strategies applied at the country stock market level? In his June 2015 paper entitled “The January Seasonality and the Performance of Country-Level Value and Momentum Strategies”, Adam Zaremba investigates this question using four value and two momentum firm/stock metrics. The four value metrics, each measured over four prior quarters with a one-quarter lag and weighted by company according to the methodology of the associated stock index, are:
- Earnings-to-price ratio (EP).
- Earnings before interest, taxes, depreciation and amortization (EBITDA)-to-enterprise value (EV) ratio (EBEV).
- EBITDA-to-price ratio (EBP).
- Sales-to-EV ratio (SEV).
The two momentum metrics are:
- Stock index return from 12 months ago to one month ago (LtMom).
- Stock index return from 12 months ago to six months ago (IntMom).
He assesses strategy performance via returns in U.S. dollars in excess of one-month U.S. Treasury bill yield from hedge portfolios that are each month long (short) the equally weighted fifth of country stock indexes with the highest (lowest) expected returns based on each metric. He first reviews performances for all months and then focuses on turn-of-the-year (December and January) performances. Using monthly data for 78 existing and discontinued country stock market indexes during June 1995 through May 2015, he finds that: Keep Reading