| Abstract: | In 1991, Michael O' Higgins and John Downes published Beating the Dow. Since then, the "Dogs of the Dow" strategies discussed in the book have received increasing levels of publicity. Although it is undeniable that the strategies have beaten the Dow Jones Industrial Average on a total return basis over the long-term, no one has ever addressed the issue of risk-adjusted returns for the strategies. This study replicated O' Higgins' and Downes' strategies from 1973 through 1995 and performed several popular risk analyses. It was determined that the three portfolio strategies delineated in Beating the Dow have provided superior returns versus the S&P 500 over the long term. Overall volatility of the stock market has decreased since 1973, increasing the risk-adjusted returns of the broad market in general. All three portfolios generated positive alphas, but they have become statistically insignificant during the most recent periods. We demonstrate that the strategies are viable over the long term from a risk-adjusted perspective; however, intermediate term underperformance and decreasing overall stock market volatility have led to risk-adjusted performance that is statistically indistinguishable from the S&P 500. |
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