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Quantitative Value Investing in Europe: What works for achieving alpha

In comparison with the USA there have been relatively few studies conducted on what works in investing in the European stock markets.

With this paper we would like to make a contribution and examine what factors led to excess returns in the European markets over the 12-year period from 13 June 1999 to 13 June 2011.

The 12-year period included a stock market bubble (1999), two recessions (2001, 2008-2009) and two bear markets (2001-2003, 2007-2009).

We not only tested the historical value of the factors, but where it made sense, we also tested the 5-year average to see if it is a better indicator to use to generate market outperformance.

When we found a factor that showed strong out-performance we tested it together with other factors to see if two factors generate even more market outperformance.

What if we told you we found a simple two-factor method you can use to select investments that led to a 23.5% per year compound return (market was 2.25%) over the 12 years we tested?

That is a total return of 1157.5% compared with the 30.54% the market returned!

This return was generated by a combination of…

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