Combining value, momentum, and low volatility : Evidence from the German stock market

Abstract

This thesis examines the risk and return characteristics of different long-only and long-short smart beta strategies in the German stock markets. The aim of this thesis is to explore the risk-adjusted returns of multi-factor portfolios created by mixing and integrating value, momentum, and low volatility strategies.

Earlier research has examined multi-factor smart beta strategies as long-only, and generally in the U.S. or international equity markets. Hence, this thesis adds to the existing literature on smart beta investing by focusing on a novel geography and studying long-short returns in addition to the long-only strategies.

The findings indicate that both long-only and long-short strategies outperform the German stock market regardless of using single-factor strategies or constructing multi-factor strategies by mixing or integrating. The long-short portfolios perform overall significantly better compared to the long-only portfolios, and multi-factor portfolios perform better compared to single-factor portfolios. The integrating approach generates superior risk-adjusted returns for long-only strategies, while the mixing approach is preferred for long-short strategies.