Size Matters : Tail Risk, Momentum and Trend Following in International Equity Portfolios

We investigate the relationship between size and momentum across a wide range of international equity markets. A distinction is made between relative momentum where assets are ranked according to their performance against each other, and absolute momentum (or trend following) where assets are categorized according to whether they have recently exhibited positive, nominal return characteristics. We find only limited evidence for the outperformance of relative momentum portfolios. Trend following, however, is observed to be a very effective strategy over the study period delivering superior risk-adjusted returns across a range of size categories in both developed and emerging markets while not reversing the performance superiority of smaller firms. We also find, contrary to popular perception, that it is the mid cap-sector that dominates in emerging markets and suggest that this sector should be considered as the equivalent to developed economy small-cap investing