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Research Details

A return based measure of firm quality

Abstract

We show that superior performance relative to peers during stressful times identifies higher quality firms as measured by conventional historical financial statement based measures as well as default probability measures. Quality measured this way is persistent, but different from price momentum. Further, a managed portfolio that takes a long position in top quintile (Stable) firms and a short position in bottom quintile (Vulnerable) firms earns superior risk adjusted returns in excess of the risk-free rate. The portfolio has an annualized Fama and French three-factor alpha of 5.2% (t=5.04) and a five-factor alpha of 3.3% (t=3.38)

Type

Working Paper

Author(s)

Ravi Jagannathan, Yang Zhang

Date Published

2019

Citations

Jagannathan, Ravi, and Yang Zhang. 2019. A return based measure of firm quality.

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