Combining value and momentum in United Kingdom stock markets: Evidence from Piotroski F-Score

This thesis examines the relationship between value and momentum strategies in the United Kingdom stock markets. Using data on publicly traded firms, I investigate whether a traditional momentum (Jegadeesh & Titman, 1993) strategy can enhance the returns of Piotroski (2000) F-Score screened value investing strategy. Results indicate that the combination strategy yields minor alpha against standalone market, value and momentum strategies and the results are robust after controlling for Fama-French 6-factors and Sharpe ratio. Similar to Bird and Casavecchia (2007), I find that the combination portfolio consists mostly of small market capitalization stocks. This is natural for high book-to-market stocks and poses sig-nificant barriers to entry for large investors looking to capitalize on this strategy. Although the alpha of the combination strategy is small, the Sharpe ratio of the strategy is larger than standalone value, momentum or market portfolios, indicating that high F-Score lowers the risk of the value-winner portfolio’s monthly returns. I propose several suggestions for future research. First, since I did not consider transaction costs or taxes, taking them into account would enhance the precision of the portfolio returns, alt-hough the impact of both is small due to the annual style of portfolio rebalancing. Furthermore, I constricted my strategy long-only so short-side impacts are not explored. One potential future research avenue would be to look into long-short strategies based on high book-to-market, F-Score and momentum. Lastly, this study was done using United States dollar returns. Calculating returns in Pound Sterling could yield minor improvements to the precision of portfolio return calculations.