The Performance of Value Momentum and Combination Strategies in the Emerging Equity Markets

Dalia Ali & Marie Stavnes Karlsen

Student thesis: Master thesis


By backtesting the performance of value, momentum and combination strategies based on the equities in the MSCI Emerging Market Index, we find that all three strategies have yielded return premia during the period 2003-2018. The premium obtained from the combination strategy is the strongest, though none of the premia delivered a higher return than that of the benchmark. This shows that a long-minus-short strategies were not the most optimal investment choices in the emerging equity markets during the examined period. However, going long in value, momentum and combination equities all outperformed the market. We find positive returns from all three strategies even when adjusting for industry performance. Although the industry performance was able to explain part of the abnormal returns, the profits of the strategies were mainly driven by individual equity performance. The best risk-adjusted return is obtained in the long-only momentum strategy, and these returns could not be explained by standard risk measures such as standard deviation and beta. Considering the same risk measures for the long-only value strategy, we found that the returns could to a larger extent be explained by a correspondingly higher risk. Examining the performances of the strategies during down markets, we find that the value premium was very strong, whereas the momentum premium was substantially negative. Our findings point in the direction that the emerging markets are not efficient, and that investor irrationality can help in explaining the existence of the value, momentum and combination premia.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
Publication date2018
Number of pages124
SupervisorsBjörn Preuss