Country Equity ETF Momentum: Ranking Markets by Past Returns
Summary
The document describes a monthly, long-only strategy that ranks country equity index ETFs by their past returns and holds the strongest markets. It gives a typical lookback range of 10 to 12 months and cites research using a portfolio of leading country indexes. The proposed rationale is that investor herding, delayed reactions to information, and other behavioral biases can sustain return trends across markets.
Evidence cited includes a study reporting persistent short-term momentum across 70 country indexes and another finding excess returns from ETF-based country and industry momentum, with quoted results varying by study and sample. The source paper reports that four top-performing indexes, held for one month and selected on prior 11-month returns, outperformed an equal-weighted benchmark over its stated 1970–2009 period. The strategy remains exposed to broad equity risk, and the document warns that country momentum can have elevated beta and fall faster than its benchmark late in the business cycle. Results may depend on the ranking period, ETF liquidity, costs, and changing market conditions.
Key ideas
- Rank country equity ETFs by trailing returns and rebalance the selected portfolio monthly.
- The document identifies 10 to 12 months as a commonly studied lookback period.
- Cited studies report momentum in country indexes and describe ETF implementation evidence.
- The strategy is long-only and retains substantial exposure to equity market risk.
- Country momentum may weaken or experience faster losses in some market cycles.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.