Original Articles

Country selection strategies based on value, size and momentum

Published in: Investment Analysts Journal
Volume 44, issue 3, 2015 , pages: 171–198
DOI: 10.1080/10293523.2015.1060747
Author(s): Adam ZarembaPoznań University of Economics, Poland


This study provides convincing evidence that stock markets with low capitalisation, low valuation ratios and high momentum tend to outperform country markets with high capitalisation, high valuation ratios and low momentum. Based on sorting procedures and cross-sectional tests conducted across 78 countries over the period 1999–2014, it has been found out that value, size and momentum effects at the country level are stronger across small and medium country markets than large ones. Thus, bearing in mind the declining benefits of international diversification observed in recent decades, it is recommended that investors include country-level factor premiums in their strategic asset allocation, without postponing them to further stages of an investment process. In addition, it has been shown that inter-market value, size and momentum effects may be used in multifactor asset pricing models, which well explain the variation in stock returns at the country level.

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