EVA: The bubble years, meltdown and beyond

James Chong, Drew Fountaine, Monica Her and Michael Phillips
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James Chong: Real Estate, & Insurance, California State University

Journal of Asset Management, 2009, vol. 10, issue 3, No 5, 191 pages

Abstract: Abstract The objective of this study is to examine whether information, if any, is indeed embedded in economic value added (EVA) that would prove useful in creating wealth, and in minimising risk, for the investor during bull and bear market environments. Should this be so, then past EVAs should contain information that aids in the creation of stock portfolios with favourable future risk-return structure. EVA-based stock portfolios were found to be similar to the S&P500 Index, but yet produced positive alphas across sub-samples, an indication that EVA contains information beneficial to increasing shareholder wealth, even in bear markets. On closer examination of the EVA-based stock portfolios, it was suggested that in times of market upswings, one should construct a portfolio based on lower EVA-ranked stocks, while switching to higher EVA-ranked stocks during market downturns.

Keywords: EVA; GARCH; conditional correlation (search for similar items in EconPapers)
Date: 2009
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DOI: 10.1057/jam.2009.4

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