NCAV/MV in Thailand Stock Market Part 2

It is widely recognized that value strategies - those that invest in stocks with low market values relative to measures of their fundamentals (e.g. low prices relative to earnings, dividends, book assets and cash flows) - tend to show higher returns. This paper was focused on the early value metric devised and employed by Benjamin Graham - net current asset value to market value (NCAV/MV) - to see if it is still useful in the modern context. Examining stocks listed on the Thailand Stock Exchange for the period 1991 to 2004 was observed that those with an NCAV/MV greater than 1.0 display significantly positive market-adjusted returns over five holding years. This testing was allowed for the possibility that the phenomenon being observed is due to the additional return experienced on smaller companies (the ‘size effect’) and still find an NCAV/MV premium. The profitability of this NCAV/MV strategy in Thailand cannot use Capital Asset Pricing Model (CAPM) to explain the abnormal return of the NCAV/MV strategy. These premiums might be due to irrational pricing.