Browsing by Author "Vetter, Moritz"
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- Is financial investment a matter of skill? : empirical evidence from Asness’s et al. Combo investment strategyPublication . Vetter, Moritz; Stahl, Jörg RolfI present empirical evidence that Asness’s et al. (2013) Combo investment strategy, consisting equally of value and momentum, yields significant returns and Jensen alphas in 13 of 18 markets analyzed. In these markets, Combo yields Sharpe Ratios ranging from 0.42 to 0.93. The market portfolio produces significant returns only in three markets. I conduct a pair-wise bootstrap analysis finding that across 17 of 18 markets the Combo investment conclusively outperforms the market taking into account Sharpe Ratio, skewness and kurtosis. My dissertation further shows that US investors can significantly improve their investment’s risk-return profile by investing internationally. My findings question the efficient market hypothesis for two reasons. First, the Combo strategy’s risk-adjusted investment performance is better than the market. Second, the strategy cannot be reconciled as a common risk factor. The momentum portfolio is not grounded in fundamental risk and Gerakos and Linnainmaa (2018) present evidence that neither is the value portfolio. My empirical analysis suggests that the theory needs to be recalibrated. While the strong correlation structure of two seemingly unrelated behavioral effects remains a puzzle, my analysis suggests that, under the premises of current theory, financial investment is a matter of skill. An investor can predictably outperform the market without risk exposure to fundamentals and robust to non-parametric simulation.