Momentum, Value, and Size and Liquidity Factors in the Polish Market
- Adam Zaremba and Przemyslaw Konieczka
- A version of the paper can be found here.
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Abstract:
The ability to indicate factors which best explains common variation in stock returns, is crucial to construction of a correct pricing model and forecasting equity returns. Taking into account long finance literature, firm characteristics such as market capitalization, book-to-market ration, the short-term history of past returns, or market turnover are important determinants of stock returns. This study seeks to identify factors important for forecasting changes in stock prices in Poland. The paper examines the relationships between common stock returns and four well-recognized factors: size, value, momentum and liquidity. First, we review existing literature in the field. Second, we investigate the relationship between fundamental factors and stock returns in the Polish market. We study also interactions between separate factors. We perform a long/short portfolio analysis based on all stocks listed on the Warsaw Stock Exchange between 2000 and 2012. We find that historically in Poland it was possible to build factor-based portfolios which outperformed the broad market. However, the Polish market seems too young to derive some statistically significant interferences.
Data Sources:
Bloomberg Warsaw Stock Exchange 2000-2012.
Alpha Highlight:
Value works; size works; momentum works.
The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.
Commentary:
- A robustness test on value/size/momo.
- Is the sample truly “out of sample?” All equity markets are highly correlated these days…
About the Author: Wesley Gray, PhD
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