And the Winner Is… A Comparison of Valuation Measures for Equity Country Allocation
Adam Zaremba , Jan Jakub Szczygielski
AbstractThe authors evaluate and compare the usefulness of various valuation ratios for equity country allocation. To this end, the performance of 73 national equity indexes is investigated for the period 1996 to 2017. The earnings before interest, tax, depreciation, and amortization (EBITDA)-to-enterprise value (EV) multiple is the best predictor of performance and outperforms other metrics. An equal-weighted portfolio that is long (short) in the tertile of countries with the highest (lowest) EBITDA-to-EV ratio produces a mean monthly return of 0.69% and a Sharpe ratio of 0.81, which is more than double the Sharpe ratios obtained from using traditional metrics such as the book-to-market ratio or dividend yield. Two major drawbacks of intercountry value strategies are identified: (1) payoffs are derived predominantly from emerging and frontier markets and (2) profitability has significantly declined in the last decade.
|Journal series||Journal of Portfolio Management, ISSN 0095-4918, e-ISSN 2168-8656, (N/A 70 pkt)|
|Publication size in sheets||0.7|
|Keywords in Polish||wycena aktywów, międzynarodowe rynki finansowe, strategie inwestycyjne|
|Keywords in English||asset pricing, international financial markets, investment strategies|
|ASJC Classification||; ; ;|
|Score||= 70.0, 08-04-2020, ArticleFromJournal|
|Publication indicators||= 1; : 2018 = 0.778; : 2017 = 0.812 (2) - 2017=0.887 (5)|
|Citation count*||5 (2020-09-10)|
* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.