Global Value Investing Delivers Diversification: A Multi-Strategy Perspective

Abstract

Not all value strategies are created equal; that is, correlations among different value strategies and among similar value strategies across markets are, in general, low. Thus, to preserve market neutrality and reduce exposure to volatility, investors need to augment value strategies and adopt a multi-strategy approach. Some exposures, however, are common to value strategies and are not diversified away. Among these exposures are value premiums and volatility jumps. The authors present their findings of value-based strategies in several markets, including top-down country allocation in equities, bonds, and currencies, and bottom up stock selection in the U.S., Japan, and Germany. The focus of the authors’ research is on the correlations among these strategies and their exposures to select market factors.

TOPICS: Portfolio theory, statistical methods, VAR and use of alternative risk measures of trading risk