Affiliation:
1. Business School Hanyang University Republic of Korea
2. Institute of Business Research Hanyang University Republic of Korea
Abstract
AbstractEconomic value added (EVA) is a useful concept for creating investment strategies for fund managers and scholars. This paper analyzes an alpha‐seeking strategy with EVA. We use a long‐short portfolio with high EVA and low EVA stocks. Using the normalized EVA, we construct a portfolio from the first to the fifth quintile and test the effectiveness of the strategy with the Carhart four‐factor model. We find the following: (1) The portfolios with high EVA stocks outperform those with low ones; (2) EVA‐based long‐short portfolio generates 6.5% return per annum. This paper provides an empirical basis for launching a new equity fund with EVA in Korea. This strategy suggestion could also be extended to introduce new EVA investment strategies in other global markets.