A two-step method for assessing enhanced value in turnaround, spin-off, and value stocks
To assess outright and relative value opportunities in stocks and benchmark their performance against an index with global relevance, it is important to achieve and measure risk-adjusted excess returns. Academic and corporate research has focused quite extensively on analyzing stock returns and comp...
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LLC "CPC "Business Perspectives"
2024-09-01
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| Series: | Investment Management & Financial Innovations |
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| Online Access: | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/20756/IMFI_2024_03_Pfister.pdf |
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| author | Nicolas Pfister Michael J. Kendzia Jan-Alexander Posth |
| author_facet | Nicolas Pfister Michael J. Kendzia Jan-Alexander Posth |
| author_sort | Nicolas Pfister |
| collection | DOAJ |
| description | To assess outright and relative value opportunities in stocks and benchmark their performance against an index with global relevance, it is important to achieve and measure risk-adjusted excess returns. Academic and corporate research has focused quite extensively on analyzing stock returns and comparing the outperformance of specific investment strategies, with value investing being one of the most prominent and longest-known factor strategies. In this event study, to test for the existence of risk-adjusted excess returns, or alpha, a novel two-step approach is proposed to assess Enhanced Value in single stocks for three different investment approaches: plain value investing, investing in spin-offs, and investing in turnaround companies. While the first step of the two-step approach screens companies for a combination of financial company characteristics, the second step ranks and sorts them by either their price-earnings ratio or by their price-book ratio, thus “enhancing” the value assessment. Their short- and mid-term stock performance is investigated for an investment horizon of one year, three years, and five years. Stocks of value companies, spin-offs, and turnaround companies outperform the S&P 500 benchmark on average and on a risk-adjusted basis for all three investment horizons when tested for Enhanced Value with the novel two-step approach. The analysis results provide deeper insights into how the value factor in its different characteristics needs to be understood in the context of investment strategies and how it potentially can be applied to stock selection and portfolio construction, resulting in investment strategies showing a risk-adjusted outperformance. |
| format | Article |
| id | doaj-art-51aa9d1dfe6f4aff96200960a1753488 |
| institution | Kabale University |
| issn | 1810-4967 1812-9358 |
| language | English |
| publishDate | 2024-09-01 |
| publisher | LLC "CPC "Business Perspectives" |
| record_format | Article |
| series | Investment Management & Financial Innovations |
| spelling | doaj-art-51aa9d1dfe6f4aff96200960a17534882025-02-03T11:31:48ZengLLC "CPC "Business Perspectives"Investment Management & Financial Innovations1810-49671812-93582024-09-0121341242910.21511/imfi.21(3).2024.3320756A two-step method for assessing enhanced value in turnaround, spin-off, and value stocksNicolas Pfister0https://orcid.org/0009-0006-9064-5145Michael J. Kendzia1https://orcid.org/0000-0001-7256-2748Jan-Alexander Posth2https://orcid.org/0000-0002-5898-0676Bachelor of Science, Department of Banking, Finance, Insurance, ZHAW School of Management and Law, SwitzerlandPh.D., Program Director, Department of International Business, ZHAW School of Management and Law, SwitzerlandPh.D., Professor, Department of Banking, Finance, Insurance, ZHAW School of Management and Law, SwitzerlandTo assess outright and relative value opportunities in stocks and benchmark their performance against an index with global relevance, it is important to achieve and measure risk-adjusted excess returns. Academic and corporate research has focused quite extensively on analyzing stock returns and comparing the outperformance of specific investment strategies, with value investing being one of the most prominent and longest-known factor strategies. In this event study, to test for the existence of risk-adjusted excess returns, or alpha, a novel two-step approach is proposed to assess Enhanced Value in single stocks for three different investment approaches: plain value investing, investing in spin-offs, and investing in turnaround companies. While the first step of the two-step approach screens companies for a combination of financial company characteristics, the second step ranks and sorts them by either their price-earnings ratio or by their price-book ratio, thus “enhancing” the value assessment. Their short- and mid-term stock performance is investigated for an investment horizon of one year, three years, and five years. Stocks of value companies, spin-offs, and turnaround companies outperform the S&P 500 benchmark on average and on a risk-adjusted basis for all three investment horizons when tested for Enhanced Value with the novel two-step approach. The analysis results provide deeper insights into how the value factor in its different characteristics needs to be understood in the context of investment strategies and how it potentially can be applied to stock selection and portfolio construction, resulting in investment strategies showing a risk-adjusted outperformance.https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/20756/IMFI_2024_03_Pfister.pdfalphabenchmarkingfactor investingrisk premiumspin-offturnaround |
| spellingShingle | Nicolas Pfister Michael J. Kendzia Jan-Alexander Posth A two-step method for assessing enhanced value in turnaround, spin-off, and value stocks Investment Management & Financial Innovations alpha benchmarking factor investing risk premium spin-off turnaround |
| title | A two-step method for assessing enhanced value in turnaround, spin-off, and value stocks |
| title_full | A two-step method for assessing enhanced value in turnaround, spin-off, and value stocks |
| title_fullStr | A two-step method for assessing enhanced value in turnaround, spin-off, and value stocks |
| title_full_unstemmed | A two-step method for assessing enhanced value in turnaround, spin-off, and value stocks |
| title_short | A two-step method for assessing enhanced value in turnaround, spin-off, and value stocks |
| title_sort | two step method for assessing enhanced value in turnaround spin off and value stocks |
| topic | alpha benchmarking factor investing risk premium spin-off turnaround |
| url | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/20756/IMFI_2024_03_Pfister.pdf |
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