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Does the “Dow-10 Investment Strategy” Beat the Dow Statistically and Economically?

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  • Grant McQueen
  • Kay Shields
  • Steven R. Thorley

Abstract

A comparison of returns from 1946 to 1995 on a portfolio of the 10 Dow Jones Industrial Average stocks with the highest dividend yields (the Dow-10) with those from a portfolio of all 30 stocks in the DJIA (the Dow-30) shows that the Dow-10 portfolio beats the Dow-30 statistically; that is, the Dow-10 has significantly higher average annual returns. After adjusting for the Dow-10 portfolio's higher risk, extra transaction costs, and unfavorable tax treatment, however, the Dow-10 does not beat the Dow-30 economically. In some subperiods, Dow-10 performance is economically superior, but the question is how to interpret this information in light of the potential for data mining and investor learning.

Suggested Citation

  • Grant McQueen & Kay Shields & Steven R. Thorley, 1997. "Does the “Dow-10 Investment Strategy” Beat the Dow Statistically and Economically?," Financial Analysts Journal, Taylor & Francis Journals, vol. 53(4), pages 66-72, July.
    • Handle: RePEc:taf:ufajxx:v:53:y:1997:i:4:p:66-72
    DOI: 10.2469/faj.v53.n4.2101
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