Does this dog hunt? Testing the performance of the dogs of the dow strategy in the U.S. and in Brazil

Abstract

This study analyzes the performance of the Dogs of the Dow Jones (DoD) investment strategy in the U.S and in Brazil on an absolute and on a risk adjusted basis. The DoD is a value oriented strategy that calls for investing equal dollar amounts in the highest yielding components of the Dow Jones. Our performance evaluation findings demonstrate that the DoD strategy shows only limited evidence that it can add value as an investment strategy in the U.S stock market. The use of the DoD strategy in Brazil shows virtually no evidence that it can add value as an investment strategy. Our analysis suggests that the dividend yield may not be a good variable to select value stocks in the U.S and in Brazil given existing empirical evidence that value stocks have outperformed growth stocks in these markets.