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Trading Applications Using EVA Style Analysis

Atreya Chakraborty, James L. Grant, Emery A. Trahan and Bhakti Varma
The Journal of Investing Trading 2021, 31 (1) 77-94; DOI: https://doi.org/10.3905/joi.2021.1.210
Atreya Chakraborty
is a professor of finance at the University of Massachusetts Boston in Boston, MA
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James L. Grant
is the senior associate dean and associate professor of finance at the University of Massachusetts Boston in Boston, MA
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Emery A. Trahan
is the interim dean and professor of finance at the D’Amore McKim School of Business at Northeastern University in Boston, MA
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Bhakti Varma
is a research affiliate at Northeastern University in Boston, MA
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Abstract

The authors apply economic value added (EVA) style analysis to four corporate actions: acquisitions, share repurchases, stock splits, and dividend announcements. Firms acquiring public targets provide significant shorting opportunities on value-destroying growth and “wise” restructurers. Acquiring firms with private targets provide longing opportunities on underinvesting and wise restructurers. For share repurchases, the authors find consistent alpha opportunities on repurchasing firms by longing their stocks, with the highest alpha on the wise restructurers. The post-announcement returns for stock splits were negative for value destroyers and positive for restructurers. For dividend increases, post-announcement effects are small except for positive alpha on the wise restructurers. For dividend decreases, negative abnormal returns continue for the value destroyers and restructurers. The best longing opportunity is on the stocks of share-repurchasing companies in a wise restructurer position, while the best shorting opportunity is on the stocks of dividend-decreasing companies in a value-destroyer position. For active investors, EVA style analysis illuminates the naiveté of a “one size fits all” trading strategy on corporate actions.

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The Journal of Investing: 31 (1)
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Trading 2021
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Trading Applications Using EVA Style Analysis
Atreya Chakraborty, James L. Grant, Emery A. Trahan, Bhakti Varma
The Journal of Investing Nov 2021, 31 (1) 77-94; DOI: 10.3905/joi.2021.1.210

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Trading Applications Using EVA Style Analysis
Atreya Chakraborty, James L. Grant, Emery A. Trahan, Bhakti Varma
The Journal of Investing Nov 2021, 31 (1) 77-94; DOI: 10.3905/joi.2021.1.210
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  • Article
    • Abstract
    • TENETS OF EVA STYLE ANALYSIS
    • FOUR TRADING APPLICATIONS USING EVA STYLE ANALYSIS
    • ANNOUNCEMENT TRADING
    • NEAR-TERM TRADING
    • LONGER-TERM TRADING
    • SYNTHESIS OF TRADING OPPORTUNITIES AROUND CORPORATE ACTIONS
    • ACKNOWLEDGMENTS
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