eThesis - Kauppakorkeakoulun sähköiset gradut

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PURPOSE OF THE STUDY In this study I am examining the efficiency and performance of high dividend, zero dividend and repurchase yield investing strategies in developed European markets from 1988 to 2008. Between these three portfolios I am to discover the relationship between different payout strategies to portfolio returns. I am also studying the performance of these three strategies in bull and bear market.

DATA I studied 1,880 companies from 16 European countries between 1988 and 2008. I constructed a Euro 750 index, which comprised of 750 largest companies in each year measured by their market capitalization. From the Euro 750 I formed Top 25, Zero and Repo portfolios.

RESULTS The main findings in this study are that the high dividend yield portfolio earns higher raw compound returns and risk-adjusted returns than market portfolio in the full time period but this is mainly due to the excellent performance in the first decade. The positive return margin is later diminished but the defensive characteristics have improved. Furthermore, prolonging the investing period improves the performance. High dividend yield strategy is superior in the bear market especially in the 1998 to 2008 time period and it has the lowest beta. Zero dividend strategy is inferior to the market portfolio and it is not able to outperform the market portfolio in the bull market periods in spite of the higher beta. Repurchase strategy is as a stand-alone risky but when combined with high dividend yield strategy it improves the excess return to the market portfolio at the cost of higher volatility and risk.