Technical and Fundamental Analysis In the US Stock Market: A Comparison of Value and Momentum Strategies in the S&P 500

Roman Daniels

Student thesis: Master thesis


This research paper aims to determine which of the two classic investment paradigms, technical or fundamental analysis, generates the highest return for the investor. To identify adequate stock selection criteria for these two paradigms, the thesis starts with a thorough explanation of the theory of financial markets. The classic financial market theory assumes a high degree of efficiency in the stock market. The EMH assumes that investors behavior on an aggregated level is rational and therefore leads to correct prices1. These assumptions are questioned by the findings of behavioral finance2. The expansion of classical financial market theory to include aspects of behavioral psychology allows for new explanations of “investors´ behavior”. The theory part of this work continues to introduce the reader to the core elements of behavioral finance theory. These elements indicate that individual financial market participants are using heuristics to process financial market information. From an institutional perspective, the agency factors described in this study allow for a better understanding of financial market (in)efficiency. The theory sections ends with the identification of stock selection criteria into investment strategies to operationalize the fundamental and technical analysis. In the analysis section, these stock selection criteria are applied to the S&P 500 for the time period 1996 – 2016. The results show that the stock selection criteria generate above market returns, with the value-portfolios overperforming the momentum strategies´ annual returns by approximately 2%. However, when comparing the performance of the examined investment strategies to the reference studies by Fama and French (1998) and Jegadeesh and Titman (1993), they do not achieve such high returns. This indicates that the market efficiency in the US stock market has increased over the past decades. Furthermore, the results allow for two more conclusions: The size effect (Banz 1981) prevails even among the 500 largest listed US corporations. The alternative risk measure3 applied to the portfolios indicates that the “margin of safety”4 did not prevent investors from the impact of the financial crisis 2008/2009.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
Publication date2018
Number of pages70