The authors examine whether investors pay enough for profitable, growing, safe companies and whether quality predicts returnAs. cross 24 countries, high quality stocks command only modest valuation premiums yet deliver strong risk adjusted performance, suggesting markets may underprice business characteristics even when they recognize them.
Quality Minus Junk
AQR
Andrea Frazzini, Cliff Asness
Research
80 Pages
Key Takeaways
Quality Premium Persists: The study covers 54,616 stocks across 24 countries from 1957 through 2016, finding quality companies consistently outperform lower quality counterparts on a risk adjusted basis.
Quality Looks Underpriced: A 1 standard deviation increase in quality corresponds to only a 22% higher price to book ratio in the U.S. and 17% globally.
QMJ Generates Alpha: The Quality Minus Junk factor produced monthly four factor alpha of 0.60% in the U.S. and 0.61% globally.The Quality Minus Junk factor produced monthly four factor alpha of 0.60% in the U.S. and 0.61% globally.
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