The Empirical Analysis Of The 'Dogs Of The Dow' Strategy

With the rapid development of the market in the modern society, more and more enterprises or individual investors become to invest stocks in the stock market. General large enterprise will invest a stock after detailed investigation, research, analysis for a long time, make detailed plans, and then begin to invest stocks; By contrast, individual investors, who named the retail investors, because of the reason that the input stock market financing volume relatively large smaller, and mostly of them is lazy in or don't understand professional stock analysis skills, which make whom can't accurately mastering the company information, and have adverse factor in investing stocks of the market.According introducinting Dogs of the Dow investment strategy in this paper, we want to help individual investors to find out the value stocks of the market more effectively and more convenient. We applied the investment strategy as follows:Step 1, we collected data of all the stocks in the market, and then select several top highest dividend yield stocks, invest the top stocks with equally weighted; Step 2, hold these stocks for 1 year, then sold them out in the next year. After updating the list of the market, we invest the new top stocks with equally weighted; Step 3, repeat the progress every year.After applying DoD investment strategy in Hong Kong stock market from 2000 through 2009, the average annual return of DoD strategy is 14.56%, is higher than Hang Seng Index, whose average annual return is 8.24%. Also, after changing the numbers of DoD investment strategy, the average annual return of DoD strategy is still higher than the stock market index; and then we applied DoD investment strategy in Japanese stock market from 1981 through 2010. The result showed that the average annual return of the portfolio is 13.61%, also higher than NIKKEI 225 index which stands for the average level of Japanese stock market, whose average annual return is 3.97%. After adjusting the risk and transaction cost, we can conclude that DoD investment strategy also has a successful performance in Japanese stock market.The study also extends the application range of the stock market which is applied by DoD investment strategy. For individual investors, the study provides a little reference for choosing effective stock portfolios.