Does Ben Graham's net current asset value investing continue to generate excess returns?

What the paper says

Abstract This study investigates the long‐term performance of Benjamin Graham's net current asset value (NCAV) strategy, one of the most stringent forms of value investing, in U.S. equity markets using data from 1969 to 2019. The NCAV criterion identifies firms trading at less than two‐thirds of current assets minus total liabilities, effectively pricing them below their estimated liquidation value. Using a sample of 648 unique firms, we find that a value‐weighted NCAV portfolio earns an average monthly return of 1.94%, significantly outperforming market benchmarks. After controlling for the Fama–French five factors, the Pastor–Stambaugh liquidity factor, and the January effect, NCAV portfolios deliver a statistically and economically significant alpha of 1.09% per month (13.9% annually). In contrast, industry‐ and size‐matched control portfolios exhibit no abnormal returns, indicating that the NCAV premium is not driven by small‐firm effects. The strategy's profitability, however, declines in the 2004–2019 period, consistent with structural changes in the U.S. economy, increased institutional participation, and evolving factor exposures. Our findings provide new evidence on the persistence, limitations, and conditional nature of deep‐value investment strategies, with implications for market efficiency and contrarian investment approaches.