The Persistence of the NCAV Stock Selection Criterion

The Net Current Asset Value (NCAV) rule continues to identify successfully firms that will provide superior risk-adjusted holding period returns after accounting for size, book-to-market (BM), risk, and prior performance. Relative to other firms, the NCAV firms (1) are more numerous during economic contractions, (2) are less likely to trade on the NYSE, (3) are less likely to be delisted because of liquidation, (4) are smaller firms, (5) have greater variance in holding period returns, (6) have higher BM ratios, and (7) have underperformed prior to their identification as NCAV opportunities. Overreaction serves as a partial explanation for the superior performance of NCAV firms.