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An investment strategy based on gearing ratio

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  • Gulnur Muradoglu
  • Morten Bakke
  • Gyrid Kvernes

Abstract

This study investigates the predictive ability of gearing in the long term for UK firms. Robustness tests are carried out to examine the returns in excess of that attainable using book to market, price earnings and size as risk factors. It is shown that by pursuing an investment strategy based on gearing ratios and a holding period of three years, returns of 9.9% in excess of market return are attainable. Excess returns, up to 21% are attainable when portfolios are constructed based on price earnings ratio and gearing ratio.

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  • Gulnur Muradoglu & Morten Bakke & Gyrid Kvernes, 2005. "An investment strategy based on gearing ratio," Applied Economics Letters, Taylor & Francis Journals, vol. 12(13), pages 801-804.
    • Handle: RePEc:taf:apeclt:v:12:y:2005:i:13:p:801-804
    DOI: 10.1080/13504850500365780
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    References listed on IDEAS

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    Cited by:

    1. Hossain, Mohammed Sawkat, 2021. "A revisit of capital structure puzzle: Global evidence and analysis," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 657-678.
    2. Muradoğlu, Yaz Gülnur & Sivaprasad, Sheeja, 2012. "Capital structure and abnormal returns," International Business Review, Elsevier, vol. 21(3), pages 328-341.
    3. Lorraine D’Mello & Sheeja Sivaprasad, 2015. "An Investment Strategy Based on Leverage: Evidence from BSE 500," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 14(3), pages 210-238, December.

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