IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Combining value and momentum indicators in varying stock market conditions: The Finnish evidence

  • Timo H. Leivo
Registered author(s):

    Purpose – The purpose of this paper is to examine the added value of combining a momentum indicator with a value indicator in varying stock market conditions. Design/methodology/approach – A comprehensive sample of Finnish non-financial stocks is first divided into three-quantile portfolios based on valuation multiples and composite value measures. The value and glamour portfolios are divided further into two-sextile portfolios based on the price momentum indicator. The performance of portfolios is evaluated on the basis of their raw and risk-adjusted returns. Moreover, the impact of the stock market cycle on relative performance of quantile portfolios is examined. Findings – Taking account of price momentum beside relative valuation criteria enhances the performance of most of the value-only portfolios during the full sample period (1993-2009). During bullish conditions, the inclusion of a momentum criterion somewhat adds value to an investor, but during bearish conditions this added value is negative. Research limitations/implications – The sample of stocks is not large in spite of its comprehensiveness from the local stock market aspect. Future studies can apply the approach to other stock markets. Practical implications – The paper provides useful implications in portfolio management. The combination of the value and momentum criteria has paid off to the investor, despite the fact that its added value during bearish periods is negative, on an average. Originality/value – This is the first time that the impact of the stock market cycle on the added value of combining price momentum with composite value measures as a portfolio-formation criterion is examined.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.emeraldinsight.com/journals.htm?issn=1475-7702&volume=11&issue=4&articleid=17062727&show=abstract
    Download Restriction: Cannot be freely downloaded

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Emerald Group Publishing in its journal Review of Accounting and Finance.

    Volume (Year): 11 (2012)
    Issue (Month): 4 ()
    Pages: 400-447

    as
    in new window

    Handle: RePEc:eme:rafpps:v:11:y:2012:i:4:p:400-447
    Contact details of provider: Web page: http://www.emeraldinsight.com

    Order Information: Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
    Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=raf Email:


    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Ledoit, Oliver & Wolf, Michael, 2008. "Robust performance hypothesis testing with the Sharpe ratio," Journal of Empirical Finance, Elsevier, vol. 15(5), pages 850-859, December.
    2. Chan, Louis K C & Jegadeesh, Narasimhan & Lakonishok, Josef, 1996. " Momentum Strategies," Journal of Finance, American Finance Association, vol. 51(5), pages 1681-1713, December.
    3. Michael J. Cooper & Roberto C. Gutierrez & Allaudeen Hameed, 2004. "Market States and Momentum," Journal of Finance, American Finance Association, vol. 59(3), pages 1345-1365, 06.
    4. Dimitris Kyriazis & George Diacogiannis, 2007. "Testing the performance of value strategies in the Athens Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 17(18), pages 1511-1528.
    5. Monica Billio & Ludovic Calès & Dominique Guegan, 2009. "Portfolio Symmetry and Momentum," Documents de travail du Centre d'Economie de la Sorbonne 09003, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Nov 2009.
    6. Eling, Martin & Schuhmacher, Frank, 2007. "Does the choice of performance measure influence the evaluation of hedge funds?," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2632-2647, September.
    7. Brown, Stephen & Yan Du, Daphne & Rhee, S. Ghon & Zhang, Liang, 2008. "The returns to value and momentum in Asian Markets," Emerging Markets Review, Elsevier, vol. 9(2), pages 79-88, June.
    8. Pätäri, Eero & Leivo, Timo & Honkapuro, Samuli, 2012. "Enhancement of equity portfolio performance using data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 220(3), pages 786-797.
    9. Chan, Louis K C & Hamao, Yasushi & Lakonishok, Josef, 1991. " Fundamentals and Stock Returns in Japan," Journal of Finance, American Finance Association, vol. 46(5), pages 1739-64, December.
    10. Narasimhan Jegadeesh, 2001. "Profitability of Momentum Strategies: An Evaluation of Alternative Explanations," Journal of Finance, American Finance Association, vol. 56(2), pages 699-720, 04.
    11. Roberto C. Gutierrez & Eric K. Kelley, 2008. "The Long-Lasting Momentum in Weekly Returns," Journal of Finance, American Finance Association, vol. 63(1), pages 415-447, 02.
    12. Monica Billio & Ludovic Calès & Dominique Guegan, 2011. "Portfolio Symmetry and Momentum," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00645814, HAL.
    13. Monica Billio & Ludovic Calès & Dominique Guegan, 2009. "Portfolio Symmetry and Momentum," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00363383, HAL.
    14. Antoniou, Antonios & Lam, Herbert Y.T. & Paudyal, Krishna, 2007. "Profitability of momentum strategies in international markets: The role of business cycle variables and behavioural biases," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 955-972, March.
    15. K. Geert Rouwenhorst, 1998. "International Momentum Strategies," Journal of Finance, American Finance Association, vol. 53(1), pages 267-284, 02.
    16. Blume, Marshall E, 1980. "Stock Returns and Dividend Yields: Some More Evidence," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 567-77, November.
    17. Campbell R. Harvey & Akhtar Siddique, 2000. "Conditional Skewness in Asset Pricing Tests," Journal of Finance, American Finance Association, vol. 55(3), pages 1263-1295, 06.
    18. Patro, Dilip K. & Wu, Yangru, 2004. "Predictability of short-horizon returns in international equity markets," Journal of Empirical Finance, Elsevier, vol. 11(4), pages 553-584, September.
    19. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
    20. Chordia, Tarun & Shivakumar, Lakshmanan, 2006. "Earnings and price momentum," Journal of Financial Economics, Elsevier, vol. 80(3), pages 627-656, June.
    21. Ron Bird & Lorenzo Casavecchia, 2007. "Value enhancement using momentum indicators: the European experience," International Journal of Managerial Finance, Emerald Group Publishing, vol. 3(3), pages 229-262, July.
    22. Ron Bird & Lorenzo Casavecchia, 2007. "Sentiment and Financial Health Indicators for Value and Growth Stocks: The European Experience," The European Journal of Finance, Taylor & Francis Journals, vol. 13(8), pages 769-793.
    23. Litzenberger, Robert H & Ramaswamy, Krishna, 1982. " The Effects of Dividends on Common Stock Prices: Tax Effects or Information Effects?," Journal of Finance, American Finance Association, vol. 37(2), pages 429-43, May.
    24. Barbee Jr., William C. & Jeong, Jin-Gil & Mukherji, Sandip, 2008. "Relations between portfolio returns and market multiples," Global Finance Journal, Elsevier, vol. 19(1), pages 1-10.
    25. Eugene F. Fama & Kenneth R. French, 2006. "The Value Premium and the CAPM," Journal of Finance, American Finance Association, vol. 61(5), pages 2163-2185, October.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eme:rafpps:v:11:y:2012:i:4:p:400-447. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.