Country Value Premiums and Financial Crises

Abstract

The paper concentrates on the value premium across countries and contributes to the investment and asset pricing literature in three ways. First, I provide fresh evidence that the high-value countries perform significantly better than the low-value countries. Additionally, this phenomenon is indifferent to the choice of the computational currency, representative index or value indicator. Second, I demonstrate that the value effect can be successfully amplified by combining with country-level size and momentum effects. Third, I show that returns to the high-value countries deteriorate in financial crisis conditions, because the country-level value premium is negatively correlated with the credit spreads, TED spread and expected volatility. I examine data from 66 markets between years 2000 and 2013.

Quality investing and the cross-section of country returns

“…First, the profitability sorting seems to improve the value strategy. The monthly returns on cross-national value strategies are higher than those reported, for instance, by Zaremba (2014). The long/short portfolios from double sorts on B/M and ROA have an intercept from the Fama-French model equal to 0.81 per cent, while the analogous metric for gross margin is 0.93 per cent.…”