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Backtest on Debt to Equity Ratio
By InvestingNook  •  June 19, 2015
Having always stressed on investing in companies that are not highly leveraged, I chanced upon this backtest study done by Fat Pitch Financials and found the results rather surprising. A brief overview of the study is as follows:
  1. No OTC stocks.
  2. No ADRs.
  3. Liquidity test. The average daily total amount traded over the past 60 trading days must be larger than $100,000.
  4. Market Cap > $50 million.
  5. Price > $1. True penny stocks are excluded due to various information issues and manipulation of these stocks.
  6. Total Debt to Total Equity Ratio not missing. This filter insures we are looking at stocks that actually have data on the total debt to equity ratio.
Having the test run the data from 2000 to 2013 it showed that the first quintile under-performed the S&P500, whereas the fifth quintile out-performed the index. This was rather surprising given how we have always stressed that firms that are ......
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By InvestingNook
As Co-Founder and Fund Manager of Heritage Global Capital Fund, we started InvestingNook as a website dedicated to sharing the knowledge of value investing – allowing our readers achieve an edge over the markets with the knowledge of value investing.
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