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Finding Value Using Momentum

Bijon Pani and Frank J. Fabozzi
The Journal of Portfolio Management Quantitative Special Issue 2022, 48 (2) 264-283; DOI: https://doi.org/10.3905/jpm.2021.1.272
Bijon Pani
is an associate vice president in the Alternative Investments and Fund Management Group at IDFC Asset Management in Mumbai, India
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Frank J. Fabozzi
is a professor of finance at EDHEC Business School in Nice, France
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Abstract

Value investing has been one of the cornerstones of equity investment strategies. This article provides a new methodology to select value stocks using the concept of relative value across firms. Results show that using multiple value ratios as foundation blocks provides better risk-adjusted returns than using a single ratio, as used by the Fama–French HML factor. The use of trends in fundamental ratios helps capture value in a stock portfolio in a new way. The trend in value metrics ranks firms that are not just cheap compared to the cross-section but also those that have become cheaper over time. The results show that this relative value method proves effective for individual value parameters and when combined to create a composite value model. Trends carry incremental information not captured by common factor models and control variables. The authors construct a composite value model that uses trends in six value ratios. Momentum when combined with value generates enhanced return performance, as documented in various academic literatures. The authors extend the discussion on the combination of momentum with value using three different methods.

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The Journal of Portfolio Management: 48 (2)
The Journal of Portfolio Management
Vol. 48, Issue 2
Quantitative Special Issue 2022
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Finding Value Using Momentum
Bijon Pani, Frank J. Fabozzi
The Journal of Portfolio Management Dec 2021, 48 (2) 264-283; DOI: 10.3905/jpm.2021.1.272

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Finding Value Using Momentum
Bijon Pani, Frank J. Fabozzi
The Journal of Portfolio Management Dec 2021, 48 (2) 264-283; DOI: 10.3905/jpm.2021.1.272
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  • Article
    • Abstract
    • LITERATURE REVIEW
    • METHODOLOGY AND DATA
    • PERFORMANCE OF THE TREND MODELS
    • MOMENTUM AND COMPOSITE TREND MODELS
    • RISK AND RETURN CHARACTERISTICS OF THE MODELS
    • CONCLUSION
    • ENDNOTES
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