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Using firm level leverage as an investment strategy

Muradoglu, Yaz Gulnur and Sivaprasad, Sheeja (2012) Using firm level leverage as an investment strategy. Journal of Forecasting, 31 (3). pp. 260-279. ISSN 0277-6693

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Official URL: http://dx.doi.org/10.1002/for.1221


We use an investment strategy based on firm-level capital structures. Investing in low-leverage firms yields abnormal returns of 4.43% per annum. If an investor holds a portfolio of low-leverage and low-market-to-book-ratio firms, abnormal returns increase to 16.18% per annum. A portfolio of low leverage and low market risk yields abnormal returns of 6.67% and a portfolio of small firms with low leverage earns 5.37% per annum. We use the Fama-Macbeth (1973) methodology with modifications. We confirm that portfolios based on low leverage earn higher returns in longer investment horizons. Our results are robust to other risk factors and the risk class of the firm.

Item Type:Article
Research Community:University of Westminster > Westminster Business School
ID Code:9047
Deposited On:20 Jan 2011 16:51
Last Modified:16 Jan 2013 15:13

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