RT Journal Article
SR Electronic
T1 Trading Applications Using EVA Style Analysis
JF The Journal of Investing
FD Institutional Investor Journals
SP 77
OP 94
DO 10.3905/joi.2021.1.210
VO 31
IS 1
A1 Atreya Chakraborty
A1 James L. Grant
A1 Emery A. Trahan
A1 Bhakti Varma
YR 2021
UL https://pm-research.com/content/31/1/77.abstract
AB 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.