A New Value Strategy

50 Pages Posted: 8 Jan 2020 Last revised: 13 Jan 2020

See all articles by Baolian Wang

Baolian Wang

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: December 19, 2019

Abstract

Motivated by recent studies on the relation between profitability and stock returns, we construct a new value measure—the ratio of cash-based operating profitability to price (COP/P)—and find a zero-investment portfolio that buys the highest-COP/P stocks and shorts the lowest-COP/P stocks earns annualized returns of 11% on a value-weighted basis and 13% on an equal-weighted basis. The COP/P effect holds even for large-capitalization stocks, exists in different periods, is distinct from known return predictors, and cannot be explained by existing factor models. The COP/P measure subsumes existing value measures and the conservative-minus-aggressive investment factor of Fama and French (2015).

Keywords: cash-based operating profitability; cross section; stock returns

JEL Classification: G02, G12

Suggested Citation

Wang, Baolian, A New Value Strategy (December 19, 2019). Available at SSRN: https://ssrn.com/abstract=3507251 or http://dx.doi.org/10.2139/ssrn.3507251

Baolian Wang (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

314 Stuzin Hall
Gainesville, FL 32611
United States

HOME PAGE: http://www.wangbaolian.com

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