Article1997

Does the “Dow-10 Investment Strategy” Beat the Dow Statistically and Economically?

Grant McQueen · Kay Shields · Steven R. Thorley

54 citations0/0 files storedFinancial Analysts Journal

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Financial Markets and Investment Strategies Corporate Finance and Governance Financial Analysis and Corporate Governance

Abstract

A comparison of returns from 1946 to 1995 on a portfolio of the 10 Dow Jones Industrial Average stocks with the highest dividend yields (the Dow-10) with those from a portfolio of all 30 stocks in the DJIA (the Dow-30) shows that the Dow-10 portfolio beats the Dow-30 statistically; that is, the Dow-10 has significantly higher average annual returns. After adjusting for the Dow-10 portfolio's higher risk, extra transaction costs, and unfavorable tax treatment, however, the Dow-10 does not beat the Dow-30 economically. In some subperiods, Dow-10 performance is economically superior, but the question is how to interpret this information in light of the potential for data mining and investor learning.

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References

1986Noise 1990Data-Snooping Biases in Tests of Financial Asset Pricing Models 1988Selection Models and the File Drawer Problem 1995Estimating Expected Return 1993Estimating Expected Return 1993Soft Dollars and the Brokerage Industry 1998Macroeconomics and finance

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