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When Growth Beats Value: Removing Tail Risk From Global Equity Momentum Strategies

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  • Andrew Clare
  • James Seaton
  • Peter N. Smith
  • Stephen Thomas

Abstract

We investigate the relationship between value, growth and momentum investment styles across a wide range of developed and emerging economy equity markets. As would be anticipated, value investing generally beats growth. We then determine whether the application of relative momentum or trend following filters can enhance the risk-adjusted performance for either value or growth investors. We find that both value and growth portfolios benefit from momentum filters but particularly the latter, though the application of such a filter still leaves investors with return volatility that is typical of equity markets along with negative skewness and with high maximum drawdowns. However, our results show that the use of a simple trend following filter typically delivers a much more favourable investment performance than relative momentum with considerably lower volatility and smaller drawdowns. Furthermore, the application of a simple trend following filter either on its own or in combination with a relative momentum filter, not only reduces the performance advantage of value over growth investing but actually reverses this advantage.

Suggested Citation

  • Andrew Clare & James Seaton & Peter N. Smith & Stephen Thomas, 2014. "When Growth Beats Value: Removing Tail Risk From Global Equity Momentum Strategies," Discussion Papers 14/09, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:14/09
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    References listed on IDEAS

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    More about this item

    Keywords

    International equity; Value investing; Growth investing; Relative momentum; Trend following; Tail risk;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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    This paper has been announced in the following NEP Reports:

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