Productivity of Short Term Assets as a Signal of Future Stock Performance
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arXiv
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| Main Authors: | , , , |
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| Format: | Preprint |
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2024
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| _version_ | 1866915069361651712 |
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| author | Vohra, Veer Vij, Devyani Mehta, Jehil Ozcan, Arman |
| author_facet | Vohra, Veer Vij, Devyani Mehta, Jehil Ozcan, Arman |
| contents | This paper investigates cash productivity as a signal for future stock performance, building on the cash-return framework of Faulkender and Wang (2006). Using financial and market data from WRDS, we calculate cash returns as a proxy for operational efficiency and evaluate a long-only strategy applied to Nasdaq-listed non-financial firms. Results show limited predictive power across the broader Nasdaq universe but strong performance in a handpicked portfolio, which achieves significant positive alpha after controlling for the Fama-French three factors. These findings underscore the importance of refined universe selection. While promising, the strategy requires further validation, including the incorporation of transaction costs and performance testing across economic cycles. Our results suggest that cash productivity, when combined with other complementary signals and careful universe selection, can be a valuable tool for generating excess returns. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2412_13311 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Productivity of Short Term Assets as a Signal of Future Stock Performance Vohra, Veer Vij, Devyani Mehta, Jehil Ozcan, Arman Trading and Market Microstructure This paper investigates cash productivity as a signal for future stock performance, building on the cash-return framework of Faulkender and Wang (2006). Using financial and market data from WRDS, we calculate cash returns as a proxy for operational efficiency and evaluate a long-only strategy applied to Nasdaq-listed non-financial firms. Results show limited predictive power across the broader Nasdaq universe but strong performance in a handpicked portfolio, which achieves significant positive alpha after controlling for the Fama-French three factors. These findings underscore the importance of refined universe selection. While promising, the strategy requires further validation, including the incorporation of transaction costs and performance testing across economic cycles. Our results suggest that cash productivity, when combined with other complementary signals and careful universe selection, can be a valuable tool for generating excess returns. |
| title | Productivity of Short Term Assets as a Signal of Future Stock Performance |
| topic | Trading and Market Microstructure |
| url | https://arxiv.org/abs/2412.13311 |