RT Journal Article
SR Electronic
T1 Optimizing Value
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 77
OP 89
DO 10.3905/jpm.2016.42.2.077
VO 42
IS 2
A1 Ran Leshem
A1 Lisa R. Goldberg
A1 Alan Cummings
YR 2016
UL https://pm-research.com/content/42/2/77.abstract
AB In a series of empirical studies, the authors investigated the performance of two popular value metrics: book-toprice (B/P) ratio and earnings-to-price (E/P) ratio. In an academic study based on data from Ken French’s website, they found that, though strategies based on E/P ratio had higher return and lower risk than strategies based on B/P ratio between 1951 and 2013, B/P ratio outperformed E/P ratio between 1963 and 1990, which was the basis of the landmark study establishing B/P ratio as the academic standard. In a practitioner-oriented study that accounted for liquidity and transaction costs, strategies based on a blend of B/P and E/P ratios outperformed both single-metric strategies during most 10-year periods between 1973 and 2013. Optimized value strategies had lower tracking error, lower turnover, and a higher information ratio than rankand-chop strategies, which weight high-percentile value stocks by capitalization. Sector constraints raised both the Sharpe ratio and the information ratio of an optimized blended-value strategy.TOPICS: VAR and use of alternative risk measures of trading risk, statistical methods