Firm-specific monthly data for this study were obtained from the CRSP. The authors propose and test a new model based on the neoclassical theory of investment. Specific data on stocks were examined to find if the neoclassical investment model was profitable. The sample covered stock returns from 1963 to 2012 and included only the firms with positive sales, positive assets, and positive market values. The findings show that the neoclassical investment model was capable of clarifying return continuation, risks related to momentum, and relationship between firm characteristics and price momentum. Results of this study contributed to the literature by proving that developing new models, such as based on the neoclassical theory can outperform the
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The UK stocks were analyzed to find which investment strategies could aid individual investors to earn excess returns. The sample data included the UK stocks and covered the period between July 1998 and June 2009. Monthly returns were obtained for each firm using each of the seven strategies. Findings show that among various strategies tested, small investors can take advantage of only one investment strategy - the price/earnings strategy. This finding has a great practical implication – individual investors can benefit from market anomalies, such as using earnings/price strategy. The author studies firm characteristics of winner and loser firms. One benefit of price momentum is that the strategy does not require investors to invest on many companies. The study presents evidence the efficient market hypothesis, which might add value to the comparison of price momentum and market efficiency. However, there is a lack of external validity in this study. What was found in UK research may not be applicable to other countries and regions around the world. This paper also provides a very useful recommendation for further research. The author suggests using investment strategies that use professional investors, instead of small investors, and using deciles, instead of small …show more content…
Dow Jones index were used to evaluate the profitability of the value, momentum, and quality investing on the future prices of stocks. The data on the Islamic stocks were collected between the years 1996 and 2012. The research process used is a three-step process. First, the authors select variables to represent each investment style. Second, using portfolio rebalancing technique and multi-style rotation strategy, the authors construct portfolios. Third, the authors utilize the Black Litterman’s methodology to forecast returns for each factor identified in the previous step. They calculate the turnover rates, investment returns, equity returns, Sharpe ratios, book-to-market ratios, and so forth. Finally, portfolio optimization process takes place. The results show that the multi-style rotation strategy used in the Islamic equities outperforms the market. One major contribution of this paper is that it combines macroeconomic factors with market view. Another important contribution is that it seeks investment opportunities in the equities that follow strict Shariah law. This might be the first search that tests value and momentum strategies on the Islamic equities available in the US equity market. The practical implication of this study is that it provides important information for investors looking for opportunities to invest in Islamic
The UK stocks were analyzed to find which investment strategies could aid individual investors to earn excess returns. The sample data included the UK stocks and covered the period between July 1998 and June 2009. Monthly returns were obtained for each firm using each of the seven strategies. Findings show that among various strategies tested, small investors can take advantage of only one investment strategy - the price/earnings strategy. This finding has a great practical implication – individual investors can benefit from market anomalies, such as using earnings/price strategy. The author studies firm characteristics of winner and loser firms. One benefit of price momentum is that the strategy does not require investors to invest on many companies. The study presents evidence the efficient market hypothesis, which might add value to the comparison of price momentum and market efficiency. However, there is a lack of external validity in this study. What was found in UK research may not be applicable to other countries and regions around the world. This paper also provides a very useful recommendation for further research. The author suggests using investment strategies that use professional investors, instead of small investors, and using deciles, instead of small …show more content…
Dow Jones index were used to evaluate the profitability of the value, momentum, and quality investing on the future prices of stocks. The data on the Islamic stocks were collected between the years 1996 and 2012. The research process used is a three-step process. First, the authors select variables to represent each investment style. Second, using portfolio rebalancing technique and multi-style rotation strategy, the authors construct portfolios. Third, the authors utilize the Black Litterman’s methodology to forecast returns for each factor identified in the previous step. They calculate the turnover rates, investment returns, equity returns, Sharpe ratios, book-to-market ratios, and so forth. Finally, portfolio optimization process takes place. The results show that the multi-style rotation strategy used in the Islamic equities outperforms the market. One major contribution of this paper is that it combines macroeconomic factors with market view. Another important contribution is that it seeks investment opportunities in the equities that follow strict Shariah law. This might be the first search that tests value and momentum strategies on the Islamic equities available in the US equity market. The practical implication of this study is that it provides important information for investors looking for opportunities to invest in Islamic