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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.