Performance of Value-Investing Strategies: Swedish Evidence, 2000-2010

Abstract

The main objective of this study is to provide updated empirical evidence on the risk-return performance of “value-investing” portfolio selection strategies in a survivorship bias controlled setting. We cover non-Financial firms publically traded in Sweden during the time period of July 2000 to June 2010. The study evaluates whether yearly rebalanced value investing strategies outperform the broader market in absolute and risk-adjusted total returns and whether “glamour” strategies, the opposite of value strategies, underperform the market and/or value strategies. Analysis includes strategy portfolio risk-return performance evaluation from an investor perspective as well as formal tests against the Sharpe-Lintner-Black CAPM. Robustness is examined over firm size and firm leverage sub-samples. We find that cash-flow oriented firm valuation ratios EBITDA/EV and FCFF/EV produce outperformance over the market for value-quantile positions, robust for size and leverage. Value quantile strategies based on earnings yield to equity metric E/P (reversed P/E) has some robustness issues while value-quantile B/M (reversed P/B) suffers from generally poor and inconsistent risk-adjusted performance. Practically, our findings of continued superior risk-reward for value quantile segments of the market could imply that investors are still under-exploiting these valuation characteristics widely documented in previous research.