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. 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! That is what a combination of the 6-month price index with the lowest price-to-book value companies returned. Very interesting was that the 10 best performing two-factor strategies all had one momentum factor as one of the factors.