The document summarizes research from several studies on international investments. Some key findings include: 1) Value stocks outperformed growth stocks internationally and small stocks outperformed large stocks. Higher returns for value stocks were due to earnings reverting to the mean. 2) Stock returns in most developed countries were higher during expansive monetary periods and lower during restrictive periods, both locally and in the US. 3) Emerging markets provided diversification benefits, especially during US monetary restrictions when they added over 4.5% annually to returns. 4) Foreign real estate provided greater diversification than foreign stocks during periods of high volatility.

1. Research in Investments
C. Mitchell Conover, Ph.D., CFA

2. Research Question
• Do Value Stocks outperform Growth Stocks in
International Markets?
• Do Small Stocks outperform Large Stocks in
International Markets
• Data are for 20 countries of the EAFE, plus
Canada.
• Quartiles formed of:
o Value Stocks = low P/E, or low P/B, or low P/CF
(Quartile 1)
o Growth Stocks = high P/E, or high P/B, or high P/CF
(Quartile 4)
“Growth versus Value and Large-Cap versus Small-Cap Stocks in International Markets”, with W.
Scott Bauman and Robert E. Miller, Financial Analysts Journal, March/April 1998, 54:2

3. Returns for Value and Growth Stocks
Internationally
(in U.S. $)

4. Return and Risk for Value and Growth Stocks
For Entire Sample of International Stocks

5. Return and Risk for Small and Large Stocks
for International Firms

6. Returns for International Value and Growth
Quartiles Subdivided by Company Size
Value 2 3 Growth
Smallest 27.5% 17.8% 18.5% 22.1%
2 16.6% 14.5% 10.5% 11.7%
3 13.9% 12.3% 10.4% 8.9%
Largest 14.5% 13.0% 10.8% 7.1%

7. Research Question
• Why do value stocks outperform
growth stocks in international
markets?
“Investor Overreaction in International Stock Markets” with W. Scott Bauman and Robert
E. Miller, Journal of Portfolio Management, Summer 1999, 24:4

8. Growth Rates of EPS for International Value
and Growth Quartiles
Value 2 3 Growth
Prior 3 Year EPS -22.9% -1.5% 12.5% 35.6%
Growth
EPS Growth in 11.3% 2.3% 0.7% 0.2%
Year t

9. Summary
• Value stocks outperform growth stocks on
a risk adjusted basis in most years and in
most countries
• Small company stocks have larger returns
than large company stocks
• The higher returns for value stocks appear
to be due to a reversion in EPS that
investors ignore when they price these
stocks

10. Research Question
• The relationship between monetary environment
and international stock returns:
• An expansive environment = Series of discount
rate decreases
• A restrictive environment = Series of discount
rate increases
• Data are for 16 developed countries from 1956 to
1995
“Monetary Environments and International Stock Returns” with Gerald R. Jensen and
Robert R. Johnson, Journal of Banking and Finance, 1999, 23:9
“Monetary Conditions and the International Diversification Decision”, with Gerald R.
Jensen and Robert R. Johnson, Financial Analysts Journal, July/August 1999, 55:4

11. Monthly Stock Returns By Local Monetary
Environment (in U.S. $)

12. Monthly Stock Returns by U.S. Monetary
Environment (in U.S. $)

13. Monthly Stock Returns by Combined Local and
U.S. Monetary Environment
(in U.S. $)

14. Summary
• Stock returns for most developed
countries are higher when monetary
conditions are expansive and lower when
conditions are restrictive.
• These patterns exist with respect to both
local and U.S. monetary environments.
• The higher returns in expansive
environments are not accompanied by
increased risk, in most countries.

15. Research Question
• Do these same patterns exist in emerging
markets during expansive and restrictive
U.S. monetary environments?
• What are the returns and risk in emerging
market?
• Data is from IFC from 1976 to 1999 for 20
countries.
“Emerging Markets: Are They Worth It?” with Gerald R. Jensen and Robert R.
Johnson, Financial Analysts Journal, March/April 2002

16. Monthly Risk and Return During Entire Time
Period (in U.S. $)

17. Monthly Stock Returns for Emerging Countries
During Expansive and Restrictive U.S. Monetary
Environments (in U.S. $)

18. Correlations Between Emerging and
Developed Country Markets
Expansive U.S. Restrictive U.S.
Environment Environment
Emerging Market
and EAFEC 0.36 0.26
World 0.42 0.27
U.S. 0.39 0.21

19. Risk and Return For Efficient Portfolios

20. Risk and Return for Efficient Portfolios during
Expansive and Restrictive Monetary Periods

21. Summary
• For entire time period, the addition of emerging
markets to an international portfolio adds 1.5 –
2.0% annually to return for a given amount of
risk.
• Emerging market returns are not as strongly
related to U.S. monetary environments as
developed country markets.
• Most of the diversification benefits from
emerging markets occurs during restrictive U.S.
monetary environments.
o U.S. investors could have added 4.5% a year to their
returns by investing in emerging markets during
restrictive U.S. monetary environments.

22. Research Questions
• Recent research indicates that diversifying
internationally fails at the very time when investors
need it the most.
• During periods of increased volatility (i.e. crash of
October 1987), global stock markets tend to move
together.
• Does foreign real estate provide greater diversification
benefit in times of increased volatility?
• Data from 1986 to 1995 for publicly traded real estate
firms in Canada, France, Great Britain, Hong Kong,
Japan and Singapore.
“Diversification Benefits form Foreign Real Estate Investments” with H. Swint Friday
and
G. Stacy Sirmans, Journal of Real Estate Portfolio Management, 2002

23. Correlation of Assets with U.S. Stocks

24. Risk and Return for Efficient Portfolios of
International Assets

25. Summary
• Foreign real estate has a lower correlation
with U.S. stocks than do foreign stocks in
98 of the 102 months examined.
• Foreign real estate returns are less
integrated with U.S. stocks during periods
of increased volatility.
• The addition of foreign real estate
improves the mean-variance efficiency of
U.S. stock portfolio.

26. Research Question
• In the U.S., firms that file their accounting statements
late have weaker performance and experience lower
stock returns in the post filing period.
• What is the frequency of late filing in foreign countries?
• Does late filing abroad signal bad news?
• Do the patterns differ for common and code law
countries?
• Data for 1987 to 1995 for 13 foreign countries.
From “The Timeliness of International Accounting Disclosures,” with Robert E. Miller
and Andrew Szakmary, forthcoming in the International Review of Financial Analysis
2008

27. Median Number of Days to File

28. Frequency of Late Filing

29. Summary
• Code law firms take longer to file their
statements.
• The frequency of late filing is also higher in code
law countries.
• Late filers demonstrate weaker performance in
common law countries than in code law
countries.
• The less timely filing in code law countries may
be associated with the role that banks play in
those countries.

30. Research Question
• Which industries have historically been value or
growth over time? What is the performance of
industries over time?
• Do value stocks outperform growth stocks within
individual industries?
• Do value industries outperform growth
industries?
• Data from 1968 to 1999 for 21 industries.
From “Industry Relationships and Value/Growth Stock Performance” with Gerald
R. Jensen, working paper

31. Price to Book Ratios for Industries

32. Risk and Return for Industries

33. Risk and Return for Value/Growth
Quartiles Formed Within Industries

34. Risk and Return for Value/Growth
Industries

35. Annual Percent Returns for Value/Growth
Quartiles Within Value/Growth Industries
Value 2 3 Growth
Industry Industry
Value 20.36 19.04 18.77 19.54
Quartile
2 17.09 14.29 14.59 14.12
3 14.22 13.36 12.25 12.95
Growth 12.47 7.54 7.52 6.11
Quartile

36. Summary
• Value stocks have higher returns and
lower risk than growth stocks when
quartiles are formed within industries.
• Value industries have higher returns and
lower risk than growth industries over
time.
• Value quartiles within value industries
have the highest returns while growth
quartiles within growth industries have the
lowest returns and highest risk.

37. Research Question
• Does the relationship between monetary
conditions and stock returns still exist in U.S.
and global markets?
• Does it vary by the size of the firm?
• Does it vary depending if the firm is a defensive
or cyclical stock?
“Is Fed Policy Still Relevant for Investors?” with Gerald R.
Jensen, Robert R. Johnson, and Jeffrey M. Mercer. Financial
Analysts Journal, January/February 2005

38. U.S. Investment Strategy Performance:
Annualized Mean Return
1963-2001

39. U.S. Sector Performance:
Annualized Mean Return
1973-2001

40. U.S. Monetary Conditions and International
Stock Returns:
Annualized Mean Return 1973-2001

41. Summary
• U.S. Monetary Policy continues to have a
significant relationship with both U.S. and
Global stock returns
• Small stocks are more sensitive to
changes in monetary conditions than large
stocks
• Cyclical stocks are more sensitive to
changes in monetary conditions than
defensive stocks

42. Research Question
• Is the relationship between monetary conditions
and sector stock returns valuable in a rotation
strategy?
• Rotation between cyclical and noncyclical stocks
• Data for 33 years from 1973 to 2005
“Sector Rotation and Monetary Conditions” with Gerald R.
Jensen, Robert R. Johnson, and Jeffrey M. Mercer. Journal of
Investing, forthcoming 2008
• Cited on CNBC, in the Wall Street Journal and the Financial
Times

43. Cyclical and Non-cyclical
Stocks
• Cyclical Stocks: Cyclical consumer goods,
Cyclical services, General industrials,
Information technology, Financials, and Basic
industries
• Non-cyclical Stocks: Resources, Noncyclical
consumer goods, Noncyclical services and
Utilities

44. Results
Expansive Restrictive Period
Period Returns Returns
(Standard (Standard
Deviations) Deviations)
Non-cyclical Stocks 14.65% 10.24%
(15.95%) (17.01%)
Cyclical Stocks 20.27% 2.25%
(18.82%) (19.81%)
Benchmark (sectors 17.98% 5.32%
equally weighted) (14.32%) (15.39%)

45. Results

46. Summary
• The sector rotation strategy would have
beat the benchmark by 3.5% a year
• Rebalancing occurs only 14 times
• Defensive stocks perform best during
restrictive periods
• Cyclical stocks perform best during
expansive periods

47. Research Question
• How does an investment in precious metal
commodities compare to that of precious metal
equities?
• Are their performances related to monetary
policy given the Fed’s role in fighting inflation?
• Is this relationship to Fed policy valuable in a
trading strategy?
“Can Precious Metals Make your Portfolio Shine?” with Gerald R.
Jensen, Robert R. Johnson, and Jeffrey M. Mercer. Working paper

48. Data
• Data for global precious metal equities and
commodities (gold, silver & platinum)
• Data for 34 years from 1973 to 2006
• 14 turning points in monetary policy

49. Risk, Return & Correlations
Precious Precious
Metal Metals
US Equities Equities Commodities
Annualized
Return 10.83% 14.11% 8.33%
Standard
Deviation 15.37% 24.81% 23.11%
Correlation with
U.S. Equities 1.00 0.08 -0.01

50. Returns by Monetary
Environment
Restrictive Period Expansive Period
Asset Class
Return Return
U.S. Equities 3.87% 16.25%
Precious Metals
11.60% 16.41%
Equities
Precious Metal
13.29% 4.56%
Commodities

51. Investment Strategies
• Benchmark is U.S. Equities
• Strategic allocation:
75% to US Equities and 25% to Precious Metals
Equities for entire period.
• Tactical allocation:
Expansive periods: 75% to US Equities and 25% to
Precious Metals Equities
Restrictive periods: 75% to US Equities and 25% to
Gold

52. Strategy Performance
$80.00
$70.00
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
Jan-73 Jan-75 Jan-77 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05
Jan-74 Jan-76 Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06
Benchmark Strategic Allocation Tactical Allocation

53. Summary
• Allocating 25% precious metals equities to
a U.S. equity portfolio increases annual
returns by 1.65% and reduces the standard
deviation by 1.86%
• Portfolio performance is superior when
using PM equities, rather than PM
commodities, over the entire time period
• During Fed tightening, the returns to PM
commodities are significantly higher than
during expansive periods (in contrast to

54. Summary
• The benefits of adding PMs to a portfolio
are small when Fed policy is expansive
• However the benefits are substantial when
monetary policy is restrictive
• Gold provides the best hedge against
restrictive Fed policy
• Using monetary policy shifts to guide a
tactical strategy had slightly higher return
and lower risk than that with a strategic