e-ISSN 2231-8542
ISSN 1511-3701

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Empirical Analysis of the Dogs of the Dow (DoD) Trading Strategy in Developed and Developing Asian Markets

Noryati Ahmad, Siti Hajar Nadrah Mohammad Ghouse and Norhana Salamuddin

Pertanika Journal of Tropical Agricultural Science, Volume 25, Issue S, November 2017

Keywords: Abnormal return, Asian developed markets, efficient market hypothesis, Dogs of the Dow strategy, overreaction hypothesis, stock markets

Published on: 7 May 2018

Supporters of Efficient Market Hypothesis argued that investors are not able to make abnormal returns when the market is in an efficient condition. In contrast Overreaction Hypothesis theory acknowledges the presence of anomalies in the financial markets and indicated that investors can generate abnormal returns through the establishment of trading strategy like Dogs of the DoW (DoD). Thus, this paper examines Dogs of the Dow (DoD) trading strategy to generate abnormal returns in stock markets in developing and developed Asian countries. The trading strategy is based on dividend anomaly and was tested in three developed markets in Asia (Singapore, South Korea and Hong Kong) and in three developing markets (Malaysia, Thailand and Indonesia). The DoD portfolio comprises 10 shares with the highest dividend yield from the identified stock market indices between 2000 and 2014. The calculated returns of DoD portfolio were benchmarked against the market returns of the respective countries studied. Results show that on average the DoD strategy statistically and significantly outperforms the average market returns for both Asian developed and developing markets. Findings appear to contradict the validity of Efficient Market Hypothesis (EMH) and support the Overreaction Hypothesis.

ISSN 1511-3701

e-ISSN 2231-8542

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