| dc.description.abstract | This thesis has studied four pre-determined screening investment strategies and whether these strategies are consistently able to generate risk-adjusted returns for a Norwegian investor in the Nordic market throughout different market conditions. The Magic Formula, Dogs of the Dow, ValStrat and Financial Companies’ strategies have been backtested on a 22-year timeframe between 1st of July 2000 to 1st of July 2022. Over this period the Magic Formula has yielded the highest average return per year of 16,4% followed by Financial Companies at 15,6%, ValStrat at 14%, and Dogs of the Dow at 3%. Dogs of the Dow being the only strategy that does not outperform the MSCI Nordic index at 4,5%.
The CAPM and Fama and French three-factor model of asset pricing is used to measure alpha. Alpha is the strategies risk-adjusted excess return in comparison to the MSCI Nordic index. The Magic Formula and the ValStrat strategy generated statistically significant alpha under the CAPM model at 18% and 9,6% respectively. However, when more factors are considered in the three-factor model the alpha falls to 15,6% and 8,4% respectively compared to the MSCI Nordic index. All strategies demonstrated better risk-adjusted performance measures in comparison to the chosen MSCI Nordic index.
To measure the alpha in different market conditions, dummy variables were created to test which strategy that generates excess return compared to the index in two periods of market unrest, the 2008 financial crisis and the Covid-19 pandemic in 2020. The ValStrat strategy showed an increase in significant alpha values when including dummy variables for the financial crisis, indicating that this strategy outperforms the index in times of recession. The other strategies showed no significant change in alpha or significant interaction terms when considering specific market conditions. | |
