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Productivity of Short Term Assets as a Signal of Future Stock Performance

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  • Veer Vohra
  • Devyani Vij
  • Jehil Mehta
  • Arman Ozcan

Abstract

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.

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  • Veer Vohra & Devyani Vij & Jehil Mehta & Arman Ozcan, 2024. "Productivity of Short Term Assets as a Signal of Future Stock Performance," Papers 2412.13311, arXiv.org.
    • Handle: RePEc:arx:papers:2412.13311
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    References listed on IDEAS

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    1. Michael Faulkender & Rong Wang, 2006. "Corporate Financial Policy and the Value of Cash," Journal of Finance, American Finance Association, vol. 61(4), pages 1957-1990, August.
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