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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Refining Value Strategies |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 84 |
| Date | 2016 |
| Abstract Text | The book-to-market (BtM) ratio can be used as a proxy for the market's expectations about future stock price performance (Piotroski and So (2012)). As Lakonishok et al.'s (1994) study suggests that expectations may be distorted for stocks with light BtM ratios, the goal is to analyze risk and return characteristics of two main strategies that should be useful in selecting mispriced securities among stocks with BtM ratios of the highest quintile (the benchmark universe). Inspired by Ikenberry et al. (1995) and Peyer and Vermaelen (2009), the first strategy suggests to only invest into companies whose management has announced a buyback during the 12 months prior to portfolio formation. Its logic is that a buyback announcement by a high BtM firm may signal undervaluation of the company's stock (Ikenberry et al. (1995)). The second strategy, called good management strategy, avoids stocks whose average BtM ratio over the past 5 years was above 5/3 and whose BtM ratio was above 5/3 of the corresponding idustry BtM average at the time of portfolio formation because Graham (2005, p. 214) suggests that the management of those companies may not be "up to par". Alternative strategies based on company fundamentals are analyzed briefly for comparative purposes. |
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