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Style investing and momentum investing: A case study

Author

Listed:
  • Sandrine de Moerloose
  • Pierre Giot

    (University of Namur; CORE, Université catholique de Louvain)

Abstract

We examine whether an investor should choose a style rotation strategy (that is style investing) rather than a buy-and-hold strategy or a momentum strategy. We run out-of-sample forecasting/investing horse races between style rotation strategies (based on logit models), simple momentum strategies and buy-and-hold strategies. Regarding style rotation strategies, we consider switches between value and growth indexes, and small-cap and large-cap indexes. To gain a long-term perspective, we use the freely available Fama–French data set, which segments US stocks into value and growth stocks, and small-cap and large-cap stocks. Although the choice of variables to include in the logit models and the investment outcomes depend on the indexes (style switches) under review, our study shows that style switching gives interesting investment results.

Suggested Citation

  • Sandrine de Moerloose & Pierre Giot, 2011. "Style investing and momentum investing: A case study," Journal of Asset Management, Palgrave Macmillan, vol. 12(6), pages 407-417, December.
    • Handle: RePEc:pal:assmgt:v:12:y:2011:i:6:d:10.1057_jam.2011.28
    DOI: 10.1057/jam.2011.28
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    References listed on IDEAS

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    1. Lucas, Andre & van Dijk, Ronald & Kloek, Teun, 2002. "Stock selection, style rotation, and risk," Journal of Empirical Finance, Elsevier, vol. 9(1), pages 1-34, January.
    2. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    3. Bala G Arshanapalli & Lorne N Switzer & Karim Panju, 2007. "Equity-style timing: A multi-style rotation model for the Russell large-cap and small-cap growth and value style indexes," Journal of Asset Management, Palgrave Macmillan, vol. 8(1), pages 9-23, May.
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