NCAV/MV in Thailand Stock Market Part 4

1) Graham and Dodd (1934), Graham (1976)

 Amongst the array of value strategies the net current asset value (NCAV/MV) approach has been successfully used in practice, most famously by Benjamin Graham in the early twentieth century, bringing high profits from the 1930s to 1956. There have been very few studies examining the NCAV/MV strategy. Graham’s NCAV/MV strategy calls for the purchase of stocks at a price 2/3 or less of the NCAV.

2) Graham and Chatman (1956)

 Graham used the NCAV/MV criterion extensively in the operations of the Graham-Newman Corporation and report that shares selected on the basis of the NCAV/MV rule earn, on average, about 20 percent per year over the 30-year period to 1956.

3) Oppenheimer (1986)

Oppenheimer tested returns of NCAV/MV portfolios with returns on both the NYSE-AMEX value-weighted index and the small-firm index from 1971 through 1983. He found that returns are rank-ordered: securities with the smallest purchase price as a percentage of NCAV show the largest returns.

4) Cheh and Zutshi (1993)

 They Focuses on the Japanese market from 1975 to 1988. In order to maintain a sample large enough for cross-sectional analysis, Graham’s criterion was relaxed so that firms are required to merely have an NCAV/MV ratio greater than zero. They found the mean market-adjusted return of the aggregate portfolio is around 1 percent per month (13 percent per year).

5)  Fama and French (1993)

 They create a three-factor asset pricing model, where expected returns were function of a stock’s

exposure to market risk, the relative returns of small versus large stock, and the relative returns of high versus low book-to-market stocks. This model was able to explain almost variation of US                  

stock returns and the majority of its explanatory power was attributable to the size variable.

6) Ying Xiao and Glen C. Arnold (2008): Testing Benjamin Graham’s net current value strategy in London 

  Because of potential problems defining accounting variables and equity capitalisation, they exclude companies with more than one class of ordinary share and foreign companies. Also excluded are companies on the lightly regulated markets and companies belong to the financial sector. They include companies that have been de-listed from the exchange due to merger, liquidation or any other reason in the holding period, thus avoiding survivorship bias. Returns for each company, including dividends, are adjusted for changes in stock splits, rights issues and stock repurchases.