Using firm level leverage as an investment strategy : WestminsterResearch

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Title	Using firm level leverage as an investment strategy
Authors	Muradoglu, Y.G. and Sivaprasad, S.
Abstract	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.
Journal	Journal of Forecasting
Journal citation	31 (3), pp. 260-279
ISSN	0277-6693
Year	2012
Publisher	Wiley
Digital Object Identifier (DOI)	doi:10.1002/for.1221
Published	2012

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