Title: Profitable trading strategies using EVA

Authors: B. Brian Lee, Byeonghee Choi, George Kanaan

Addresses: Indiana University Kokomo, USA and Concordia University, Canada. ' Choi & Associates. ' Concordia University, Montreal, Canada

Abstract: We examine whether or not the value relevant information of EVA is fully incorporated in stock prices by constructing trading strategies using signs of changes in both earnings and EVA. The portfolio of stocks with negative changes in earnings coupled with positive changes in EVA yields higher cumulative future returns than do benchmark portfolios over several years (from four to six future years), from the year in which investment portfolios are formed. The multi-regression model shows consistent results. Thus, we conclude that the lower association of stock returns with EVA than with earnings might arise from investors| functional fixation on earnings numbers, not on lower value relevance of EVA.

Keywords: trading strategies; EVA; economic value added; stock prices; earnings; investment portfolios.

DOI: 10.1504/GBER.2004.006224

Global Business and Economics Review, 2004 Vol.6 No.1, pp.134 - 148

Published online: 07 Feb 2005 *

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