Low Versus High Leverage (LVH)

Arkadiusz Bebel

MPRA Paper from University Library of Munich, Germany

Abstract: Disputes whether financial structure can create value or not were started more than 50 years ago with Modigliani Miller theorem. In this paper I would like to present my own view on level of debt in value creation process. What I am going to prove is that due to expansion option companies with low level of debt are outperforming highly leveraged companies in the long run. I have created a new factor LVH (low versus high leverage) to quantitatively prove that being long in companies with below median net debt/EBITDA and being short in companies with above net debt/EBITDA can bring abnormal returns (with Sharpe ratio even higher than 0.9 and statistically significant alfa of around 7.7% yearly). As shown in chapter IV.II. such strategy might be supplemented by Momentum, Betting against Beta or High minus Low Devil strategies.

Keywords: factor investing; quantitative strategy; net debt; leverage; Modigliani-Miller; value creation; alfa (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G15 (search for similar items in EconPapers)
Date: 2014-11-08, Revised 2014-11-08
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/62889/1/MPRA_paper_62889.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:62889

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().