Testing Benjamin Graham's Net Current Asset Value Strategy in London

Xiao, Ying; Arnold, Glen

doi:10.2139/ssrn.966188

Cited by 4 publications

(3 citation statements)

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“…Klerck and Maritz (1997) tested the applicability of certain combinations of Graham's stock selection criteria on the industrial markets in South Africa for the period 1977-1994 and observed that over the longer term, all of the portfolios investigated provided riskadjusted returns significantly above which the asset pricing model suggested. Xiao and Arnold (2007) tested the applicability of NCAV to market value (MV) strategy on the stocks listed on the London Stock Exchange for the period 1981-2005 and found that stocks with an NCAV/MV greater than 1.5 displayed significantly positive market adjusted returns over five holding years.…”

Section: Relevant Literature Reviewmentioning

confidence: 99%

“…Amongst the multitude of value strategies, the net current asset value (NCAV) approach by Benjamin Graham has been successfully used in practice, in the early twentieth century, bringing high profits from the 1930s to 1956 (Xiao & Arnold, 2007). This strategy calls for buying shares whose market price is lesser than two-third of the NCAV of the share.…”

Section: Introductionmentioning

confidence: 99%

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Testing the Performance of Graham’s Net Current Asset Value Strategy in Indian Stock Market

Singh

Kaur

2013

Asia-Pacific Journal of Management Research and Innovation

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Using the data on stocks listed on Bombay Stock Exchange (BSE) for the period spanning from 1996 to 2010, the present study intends to examine the relevance of stock selection based on net current asset value rule of Benjamin Graham in Indian capital market. This valuation metric is aimed at buying the securities whose prices are lesser than the net current assets of the company. The returns derived from the stocks meeting the criterion are analysed using one sample t-test, capital asset pricing model (CAPM). The results revealed that the portfolio selected on the basis of this criterion provided significantly positive mean market adjusted returns in maximum number of years when the holding period of the portfolio is extended from 12 months to 24 months. The significant abnormal returns derived through CAPM model, however, cannot be considered conclusive due to lesser explanatory power of the model. Nevertheless, the portfolio showed lesser volatility than the market portfolio, thereby implying that the fund managers can also use it as an investment tool for risk management due to lesser risk and positive market adjusted returns.

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Section: Relevant Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Testing the Performance of Graham’s Net Current Asset Value Strategy in Indian Stock Market

Singh

Kaur

2013

Asia-Pacific Journal of Management Research and Innovation

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“…The studies examining the relevance of stock selection criteria of Graham have found considerable premium yielded by these principles, see, for example, Oppenheimer and Schlarbaum, (1981), Oppenheimer (1984Oppenheimer ( , 1986, Vu (1988), Lauterbach and Vu (1993), Bildersee et al (1993), Klerck and Maritz (1997), Vanstone et al (2004), Quah (2007), Xiao and Arnold (2008), Balik and Mehran (2008) and Chang (2011). However, most of these studies relate to the US and other mature markets.…”

Section: Introductionmentioning

confidence: 99%

Testing Ben Graham’s Stock Selection Criteria in Indian Stock Market

Singh

Kaur

2014

Management and Labour Studies

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Using the data on stocks listed on Bombay Stock Exchange for the period spanning from 1996 to 2010, the present study intends to examine the profitability of stock selection criteria of Benjamin Graham in Indian capital market. The different risk-reward combinations of the criteria and the minimum number of principles to be followed by a stock have been examined using one sample T-test, Sharpe ratio and capital asset pricing model (CAPM). The results make it evident that all the risk-reward combinations can be used safely by investors in order to extract excess returns except the combination of discount to net current asset value (NCAV) and current ratio and the combination of high dividend yield and low leverage. Such stocks have lesser chances of growth in future and excessively blocked inventory reduces the operating efficiency of the business. Furthermore the stocks meeting any four rules of the criteria can yield excess returns to investors if such stocks are held for the period of 24 months.

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