Quality investing and the cross-section of country returns

Adam Zaremba

Abstract

Purpose The main purpose of this study is to examine the role of quality as a determinant of a cross-sectional variation in country-level stock returns. The study attempts to address the question: Is there any special premium for top-quality stock markets with decent profitability, indebtedness and liquidity ratios? Design/methodology/approach The computations are based on the listings of 66 country portfolios over the period between 2000 and 2013. Long/short country portfolios from sorts on characteristics related to quality are examined with asset-pricing models. Findings The inter-market variation in returns may be explained with profitability and debt ratios: the more profitable and the less indebted is the stock market, the better is its performance. Moreover, the performance of country-level value, size and momentum strategies may be improved by double sorting on quality characteristics. Practical implications The practical implications include such issues as the global asset allocation, the development of investment products, asset pricing and investment performance measurement. The country selection strategies that are based on leverage and profitability prove to be a useful tool for investors with a global investment mandate. Furthermore, additional sorting on quality metrics may markedly improve the performance of inter-market value, size and momentum strategies. Originality/value This paper examines the role of quality metrics related to financial leverage, profitability and liquidity in explaining the cross-sectional variation in country returns.
Author Adam Zaremba (WZ / KIiRK)
Adam Zaremba,,
- Department of Investment and Capital Markets
Journal seriesStudies in Economics and Finance, ISSN 1086-7376, (0 pkt)
Issue year2016
Vol33
No2
Pages281-301
Publication size in sheets1
Keywords in EnglishLeverage, Quality investing, Cross-section of country returns, International stock markets, Profitability premium, Quality premium
DOIDOI:10.1108/SEF-06-2014-0119
URL https://www.emeraldinsight.com/doi/full/10.1108/SEF-06-2014-0119
Languageen angielski
Score (nominal)5
Score sourcejournalList
ScoreMinisterial score = 0.0, 10-12-2019, ArticleFromJournal
Ministerial score (2013-2016) = 5.0, 10-12-2019, ArticleFromJournal
Publication indicators WoS Citations = 2
Citation count*7 (2020-08-03)
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* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.
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