FREE New Issue of Empirical Finance Research Newsletter (including stock screen results)
The March issue of Empirical Finance Research Newsletter has been published. We're pleased to bring it to you absolutely FREE in partnership with Wes Gray and Andy Kern of Empirical Finance, LLC. This month's newsletter includes the results of a stock screen that should not be missed.
March 2009 — Empirical Finance Research Newsletter on Information in Balance Sheets for Future Stock Returns: Evidence from Net Operating Assets, a paper by Georgios Papanastasopoulos, Dimitrios Thomakos and Tao Wang
Abstract:
This paper extends the work of Hirshleifer et al. (Journal of Accounting and Economics, 38, 2004) on the net operating assets (NOA) anomaly. After controlling for current profitability, we find a negative relation of NOA and NOA asset components with future stock returns. We also find that the hedge strategies on NOA and NOA asset components generate abnormal returns and survive the statistical arbitrage test of Hogan et al. (Journal of Financial Economics, 73, 2004). Our overall analysis is highly suggesting that the NOA anomaly may be present due to accounting distortions that arise from earnings management.
Conclusions:
This paper is a great step towards turning a well documented anomaly into a realistic trading strategy. The results seem to be very persistent over time, indicating that we should expect the phenomenon to continue. Further, whether we take a simple long/short approach or also account B/M, the returns are very, very large.
Find out more about the FREE Empirical Finance Research Newsletter.
Disclosure: No position.