THE RETURN CHARACTERISTICS OF MAJOR U.S. EQUITY ASSET CLASSES

Jayen B. Patel, Adelphi University, Garden City, New York, U.S.A.

Published in

JOURNAL OF INTERNATIONAL BUSINESS AND ECONOMICS
Volume 19, Issue 4, p49-60, December 2019

ABSTRACT

We compared performance of six major U.S. equity asset classes, namely, small growth, small neutral, small value, large growth, large neutral and large value portfolios with the market portfolio for the period January 1960 to December 2018. We found only small value and small neutral portfolios generated statistically significant higher returns than that of the market portfolio during the overall time period and the expansion phases of the economy. We also found returns of small value and small neutral portfolios are higher than that of the market portfolio during periods of economic recessions but these differences in returns were not statistically significant. Investors may want to consider allocating some proportion of their investments in these two equity asset classes along with the overall equity market portfolio. We also examined diversification potential of each of these six specialized equity portfolios with the market portfolio. We found each of these six equity portfolios has a very high positive correlation with the market portfolio in both phases of the economic cycles and in each decade from January 1960 to December 2018.

Keywords

U.S. equity asset classes, stock returns, equity returns, small growth portfolios, small neutral portfolios, small value portfolios, large growth portfolios, large neutral portfolios, large value portfolios.


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