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. The factors we tested were:
We didn't only test the historical value of the factors, but where it made sense, we also tested the 5-year average to see if it is a better indicator to use to generate market outperformance. When we found a factor that showed strong out-performance we tested it together with other factors to see if two factors generate even more market outperformance. In addition, we also tested two investment strategies, the Magic Formula and the ERP5 strategy, for their ability to outperform the market. What we found mostly confirmed what other research studies found, but a few results were really astounding.