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Abstract
The authors offer a new integrated framework to combine alpha momentum and alpha reversal into a superior investment strategy for international equity markets. Mixing both effects into a single blended alpha signal forms a stronger country and industry selection method. An equal-weighted strategy that simultaneously goes long the indexes with the highest short-term and the lowest long-term alphas and shorts the ones with the lowest short-term and highest long-term alphas yields monthly three-factor model alphas of 1.16% and 1.44% for countries and industries, respectively. The results are robust to alternative weighting schemes, the effect of trading costs, alternative alpha models, and controlling for popular return predictive variables.
TOPICS: Statistical methods, factor-based models
Key Findings
• The article offers a new integrated framework to combine alpha momentum and alpha reversal into a superior investment strategy for international stock markets.
• Mixing both effects into a single blended alpha signal forms a stronger country and industry selection method.
• The abnormal returns are economically significant and robust to alternative weighting schemes, different alpha models, and controlling for popular return predictive variables.
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Don’t have access? Click here to request a demo
Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600