Value versus growth stocks and earnings growth in style investing strategies in Euro-markets

The authors study the Euro-zone during the period 1988-2003.  They first corroborate prior studies that show value strategies outperform growth strategies.  They then go on to define undervalued/(overvalued) value/(growth) stocks as those with high(low) EPS growth and high(low) E/P or B/P ratios, respectively.  They further show that undervalued value stocks outperform overvalued growth stocks over the period.

The authors further analyze the effect of expected EPS changes on value and growth strategies, following a study by Ahmed and Nanda in 2001.  The authors corroborate that study by finding that stocks with positive earnings momentum outperform those with negative earnings momentum, especially when combined with the undervalued value stocks.

Chahine, S. (2009). Value versus growth stocks and earnings growth in style investing strategies in Euro-markets. Journal of Asset Management, 9(5), 347–358.

Enhancement of value portfolio performance using momentum and the long-short strategy: The Finnish evidence

The authors continue the work of Bird and Casavecchia to study the performance of portfolios composed of both value and momentum stocks.  They use the Finnish stock market returns of 1993 to 2008 and form value/momentum portfolios.  They find that portfolios with a composite of valuation indicators (i.e., D/P, B/P, and EBITDA/EV) and top quintile 6-month price momentum outperformed the market by nearly 5 percentage points annually, and the volatility was decreased by 0.86 percentage points.

They went on to study the effect of using this portfolio in a 130/30 long/short strategy, thereby shorting 30% of the "glamour losers" and using those proceeds to go long 30% "value winners".  This strategy produced returns that doubled the market returns and lowered volatility by 3% points.

Leivo, T. H., & Pätäri, E. J. (2011). Enhancement of value portfolio performance using momentum and the long-short strategy: The Finnish evidence. Journal of Asset Management, 11(6), 401–416.

The performance of value and momentum investment portfolios: Recent experience in the major European markets

The authors use the equity returns of major European markets over the period 1990 - 2002 to study various value and momentum strategies.

For value, they found that the use of book-to-market and sales-to-price criterion perform better than dividend yield and earnings yield.  Even when adjusting for size and country bias, "cheaper" stocks significantly outperform the "expensive" stocks.

For momentum, they looked at price momentum (on a 6-month and 12-month criteria) and earnings momentum (agreement measures and forecast revisions).  Even when adjusting for size and country bias, "past winners" significantly outperform "past losers".  The past winners are typically "growth" and large-cap biased, and they perform best at 6-12 month holding periods.

Bird, R., & Whitaker, J. (2003). The performance of value and momentum investment portfolios: Recent experience in the major European markets. Journal of Asset Management, 4(4), 221–246.

The performance of value and momentum investment portfolios

The authors build portfolios of stocks that are characterized by both value and momentum factors and determine they outperform.  The thought is that value and momentum factors are opposing (i.e., momentum is typically associated with growth rather than value stocks).  By selecting stocks with both attributes, they form portfolios with components that are less correlated; and in addition, they buy cheap stocks when they are on the rise, which may be a more appropriate time to buy them than when they are falling.

Bird, R., & Whitaker, J. (2004). The performance of value and momentum investment portfolios: Recent experience in the major European markets Part 2. Journal of Asset Management, 5(3), 157–175.