| his paper applies a trading strategy that relies on fundamental economic and accounting factors to evaluate the performance of stock returns. Specifically, we test the hypothesis that a portfolio of cheap but efficient stocks should offer a higher return than the market. We use two signals---earnings yield (cheapness) and return on capital (ROC) (efficiency), to rank stocks that sell below book value (another measure of cheapness) and create portfolios of 30 stocks that are held over a one-year and two-year period.;We find that the ranking methodology generates excess returns of 47.94% for all stocks selling below book value. The strategy works best when applied to stocks that have market capitalization of less... |
