Abstract
Investment strategy using the EVA metric has gained popularity, particularly with Fortune9s publication of the top wealth creators as calculated by Stern Stewart & Co. In this article, the author examines if portfolios created with higher EVA firms lead to higher returns. Two anomalies exist. First, negative EVA to market value (EVA–MV) firms earn, on average, the highest portfolio returns over a 10-year period. Second, the relationship between the EVA–MV ratio and portfolio returns is not linear, but U-shaped. However, when a reward-to-risk measure is utilized, a positive linear risk–return relationship prevails, providing evidence that the EVA–MV ratio is a proxy for risk.
Published Version
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