Deep Value Investing and Unexplained Returns
41 Pages Posted: 2 Oct 2011 Last revised: 5 Jan 2012
Date Written: September 16, 2011
The strategy of buying and holding “net nets” has been advocated by deep value investors for decades, but systematic studies of the returns to such a strategy are few. We detail the returns generated from a net nets strategy implemented from 1984 - 2008, and then attempt to explain the excess returns (alpha) generated by the net nets strategy. We find that monthly returns amount to 2.55%, and excess returns using a simple market model amount to 1.66%. After controlling for a variety of risk factors and firm characteristics, and imposing several filters, we find a remaining significant excess return.
Keywords: deep value, net nets, excess returns
JEL Classification: G11, G12
Suggested Citation: Suggested Citation