Adam Zaremba

Country Selection Strategies Based on Value, Size and Momentum

This study provides convincing evidence that stock markets with low capitalisation, low valuation ratios and high momentum tend to outperform country markets with high capitalisation, high valuation ratios and low momentum. Based on sorting procedures and cross-sectional tests conducted across 78 countries over the period 1999–2014, it has been found out that value, size and momentum effects at the country level are stronger across small and medium country markets than large ones. Thus, bearing in mind the declining benefits of international diversification observed in recent decades, it is recommended that investors include country-level factor premiums in their strategic asset allocation, without postponing them to further stages of an investment process. In addition, it has been shown that inter-market value, size and momentum effects may be used in multifactor asset pricing models, which well explain the variation in stock returns at the country level.

Country Selection Strategies Based on Quality

Purpose - – The purpose of this paper is to examine country-level parallels of the stock-level anomalies related to quality, i.e. profitability, leverage, liquidity, accruals, payout and turnover. Design/methodology/approach - – The study uses sorting and cross-sectional tests within a sample of 77 countries over the period of 1999-2014. Findings - – Markets populated with low-leveraged and cash-rich companies significantly outperform highly leveraged and cash-poor markets, respectively. The both cross-sectional patterns are stronger across small markets than across large ones. Furthermore, additional sorts on leverage and profitability markedly improve performance of cross-national value strategies. Finally, markets with companies with high-cash holdings earn additional premium in times of tight liquidity conditions. Practical implications - – Considering the diminishing benefits of international diversification in recent decades, investors should consider the country-level quality strategies in a strategic asset allocation, and not to postpone them to a later stage of the investment process. Furthermore, investments in cash-rich markets provide a hedge against liquidity distress. Originality/value - – The first study to comprehensively examine country-level quality effects across global stock markets.

Value, Size, Momentum, and Unique Role of Microcaps in CEE Market Stock Returns

This article examines cross-sectional asset-pricing methods based on value, size, and momentum on the Central and Eastern European (CEE) markets. It highlights the unique role of microcap equities. The analysis is based on stock-level data for 11 countries within the period from April 2001 to June 2014. It provides strong evidence for the value and momentum effects, simultaneously questioning the traditional size premium. Furthermore, the study indicates exceptionally high returns on microcaps. Except for the momentum and market risk premium, it reveals no correlation between local CEE pricing factors and global, or Western European, factors. Although both three-factor and four-factor models based on local factors outperform the models based on international factors, they fail to explain the abnormal returns observed in the case of microcaps. However, the introduction of a new pricing factor—micro minus rest (MMR)—leads into nearly entire rectification of this defect.

The January Seasonality and the Performance of Country-Level Value and Momentum Strategies

The study examines the turn-of-the-year effect in the country-level value and momentum strategies. We re-examine eight distinct value and momentum strategies within 78 markets in the 1995‑2015 period and we test their performance for the seasonal patterns. We find that during the last 20 years the value strategies performed particularly well in January and poor in December. On the contrary, the momentum strategies had high returns in December and low in January. These observations are consistent with the explanations of the January seasonality related to the tax loss selling and window dressing effects.

The Momentum Effect in Country-Level Stock Market Anomalies

The aim of this paper is to present the low-volatility and momentum effects across country-level anomalies in global equity markets. By using a sample of 78 countries for the period from 1995 to 2015, a set of potential 40 cross-sectional inter-market anomalies was tested, some of which had never been examined before. Based on the findings, according to which half of the abovementioned anomalies serve as reliable and robust sources of returns, we provide convincing evidence that the anomalies with low volatility over the past 12-48 months or good performance over the past 6-12 months tend to outperform in the future. Furthermore, the study showed that returns on individual country-level strategies are weakly correlated. Consequently, developing a portfolio consisting of past top-performing or low-volatility strategies may constitute a valuable approach for international investors.

Are Value, Size and Momentum Premiums in CEE Emerging Markets Only Illusionary?

The answer to the question posed in the title is mostly yes. Using sorting and crosssection, we investigate the impact of illiquidity and transaction costs on value, size and momentum premiums in 11 CEE stock markets (Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) for the years 2000–2013. We find very high value and size premiums and strong synergy effects between value and momentum strategies. However, the impact of illiquidity and transaction costs is almost lethal. After accounting for varying bid-ask spreads and liquidity, only the value premium survives. The size and momentum effects get obliterated.

Strategies Based on Momentum and Term Structure in Financialized Commodity Markets

The aim of this paper is to investigate the impact of the financialization of commodity markets on the profitability of strategies based on momentum and term structure. The performance of an array of portfolios from double-sorts on non-commercial traders’ participation, historical returns and term spreads are tested against a risk model. The analysis covers the listing of 26 commodities in the period 1986 – 2013. First and foremost, the paper provides a fresh evidence for the validity of strategies based on momentum and term structure investing in commodity markets. Secondly, it proves that term structure strategies generate significantly higher performance results in non-financialized markets. Moreover, it supports the thesis that market financialization adversely affects momentum profits. The results are important in terms of tactical and strategic asset allocation in commodity markets. They imply that investors who implement momentum or term structure based strategies should also consider the composition of market participants.

Skewness Preference Across Countries

Prospect theory implies that assets with positively skewed returns should be traded at premium to assets with negative skewness. We hypothesize that in the integrated financial markets this concept should also hold for the entire country equity portfolios. This article examines the linkages between the country-level expected returns and past skewness. We evidence a robust negative relationship between skewness and future returns. The phenomenon is most significant within large, liquid, developed, and open stock markets. Additional sorts on skewness can improve performance of both cross-country value and momentum strategies. The study is based on the sorting and cross-sectional tests conducted within a sample of 78 country equity markets for years 1999-2014.

THE LOW PRICE EFFECT ON THE POLISH MARKET

In this paper we investigate the characteristics of the low price anomaly, which implies higher returns to stocks with a low nominal price. The research aims to broaden academic knowledge in a few ways. Firstly, we deliver some fresh evidence on the low price effect from the Polish market. Secondly, we analyze the interdependence between the low price effect and other return factors: value, size and liquidity. Thirdly, we investigate whether the low price effect is present after accounting for liquidity. Fourthly, we check to see whether the low price effect is robust to transaction costs. The paper is composed of three main sections. In the beginning, we review the existing literature. Next, we present the data sources and research methods employed. Finally, we discuss our research findings. Our computations are based on all the stocks listed on the Warsaw Stock Exchange (WSE) in the years 2003-2013. We have concluded that the low price effect is present on the Polish market, although the statistical significance is very weak and it disappears entirely after accounting for transaction costs and liquidity.

Quality Investing and the Cross-Section of Country Returns

The main objective of this study is to examine the role of quality as a determinant of a cross-sectional variation in country-level stock returns. The study attempts to address the question: Is there any special premium for top-quality stock markets with decent profitability, indebtedness and liquidity ratios? The computations are based on the listings of 66 country portfolios over the period between 2000 and 2013. Long/short country portfolios from sorts on characteristics related to quality are examined with asset pricing models. The inter-market variation in returns may be explained with profitability and debt ratios: the more profitable and the less indebted is stock market, the better is its performance. Moreover, the performance of country-level value, size and momentum strategies may be improved by double-sorting on quality characteristics. The practical implications include such issues as the global asset allocation, the development of investment products, asset pricing and investment performance measurement. The country selection strategies based on leverage and profitability prove a useful tool for investors with global investment mandate. Furthermore, additional sorting on quality metrics may markedly improve the performance of inter-market value, size and momentum strategies.