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Quality minus junk

Review of accounting studies, 2019-03, Vol.24 (1), p.34-112 [Peer Reviewed Journal]

The Author(s) 2018. corrected publication 2018 ;Review of Accounting Studies is a copyright of Springer, (2018). All Rights Reserved. © 2018. This work is published under http://creativecommons.org/licenses/by/4.0/ (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License. ;ISSN: 1380-6653 ;EISSN: 1573-7136 ;DOI: 10.1007/s11142-018-9470-2

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  • Title:
    Quality minus junk
  • Author: Asness, Clifford S. ; Frazzini, Andrea ; Pedersen, Lasse Heje
  • Subjects: Accounting/Auditing ; Business and Management ; Corporate Finance ; Paperboard ; Profits ; Public Finance ; Stocks ; Valuation
  • Is Part Of: Review of accounting studies, 2019-03, Vol.24 (1), p.34-112
  • Description: We define quality as characteristics that investors should be willing to pay a higher price for. Theoretically, we provide a tractable valuation model that shows how stock prices should increase in their quality characteristics: profitability, growth, and safety. Empirically, we find that high-quality stocks do have higher prices on average but not by a large margin. Perhaps because of this puzzlingly modest impact of quality on price, high-quality stocks have high risk-adjusted returns. Indeed, a quality-minus-junk (QMJ) factor that goes long high-quality stocks and shorts low-quality stocks earns significant risk-adjusted returns in the United States and across 24 countries. The price of quality varies over time, reaching a low during the internet bubble, and a low price of quality predicts a high future return of QMJ. Analysts’ price targets and earnings forecasts imply systematic quality-related errors in return and earnings expectations.
  • Publisher: New York: Springer US
  • Language: English
  • Identifier: ISSN: 1380-6653
    EISSN: 1573-7136
    DOI: 10.1007/s11142-018-9470-2
  • Source: Springer Open Access Journals
    ProQuest Central
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