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Evidence of market anomalies in the Eurozone: A practical implementation
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Resumo(s)
Previous research documented the existence of market anomalies; this work directs its focuson the possible usage of this evidence into a profitable trading strategy. It connects itself with the recent literature around the forecasting power of market anomalies over the cross-section of stock returns, in particular Lewellen (2014). Using a sample of twenty-six anomalies their pervasiveness is tested over the Eurozone (represented by the companies included in the five biggest stock indexes) in the new millennium era. A portfolio that combines the anomalies according to their past performance outperformed the main Euro stock indexes, obtaining a Sharpe ratio of 0,59 and an annualized alpha of 7,41%. Moreover the attractiveness of the portfolio is augmented by its dynamicity: due to the large amount of factors analyzed and the flexibility of the Sharpe Ratio as an indicator the portfolio is able to detect cyclicality in the economy and to wisely diversify around geographical areas.
Descrição
A Work Project, presented as part of the requirements for the Award of a Master’s Double Degree in Finance and Financial Economics from NOVA – School of Business and Economics and Maastricht University