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A New Value Strategy

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  • Baolian Wang

Abstract

Traditional value measures performed poorly over the past three decades. We reevaluate the value strategy using a new measure—the ratio of cash-based operating profitability to price (COP/P)—and find a zero-investment portfolio that buys the highest-COP/P stocks and shorts the lowest-COP/P stocks earns monthly returns of 0.78% on a value-weighted basis and 1.04% on an equal-weighted basis. The COP/P effect holds even for large-capitalization stocks and exists even in the post-1990 period, when book-to-market does not predict returns. The COP/P measure subsumes many widely used value measures and the conservative-minus-aggressive investment factor. (JEL G02, G12)

Suggested Citation

  • Baolian Wang, 2024. "A New Value Strategy," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 14(1), pages 40-83.
    • Handle: RePEc:oup:rasset:v:14:y:2024:i:1:p:40-83.
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    File URL: http://hdl.handle.net/10.1093/rapstu/raad014
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    More about this item

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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