Rotational Dynamics of EVA Style Analysis: Implications for Traders and Investors

Abstract

We extend prior work on economic value added (EVA) style analysis in the context of dynamic changes in EVA style. We find that rotations of EVA style provide traders and investors with opportunistic returns. For value-creating growth companies, the status quo strategy outperformed the consolidated annual average return of companies that moved out of Quadrant II (QII) to other EVA styles by 7.45%. For value-destroying growth companies, the status quo position underperformed the consolidated average return of companies that moved out of QIII to other EVA styles by 11.24%. For almost every year from 2000–2020, the status quo strategy for value-creating growth companies outperformed the consolidated annual returns from moving out of QII to other EVA styles. For most every year over the 21-year reporting period, the status quo strategy for value-destroying growth companies underperformed the consolidated returns from moving out of QIII. Future research on the dynamics of EVA style points to opportunities to build out trading systems across multiple starting points.