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Quality investing in an Australian context

Journal Article


Abstract


  • This study extends an examination of Quality investing in the US to the Australian market. Specifically, a Quality score is computed as the aggregate of eight fundamental accounting metrics. An investment strategy investing in the highest (lowest) quality stock quintile, that is, Quintile 5 (1) generates an average annual Daniel, Grinblatt, Titman and Wermers (DGTW)-adjusted alpha of 6.37% (−7.98%), which is significant at the 5% level over April 2000–March 2010. A two-way segmentation based on size first, and quality second, reveals that the strong positive quality effect is primarily driven by small stocks, as the average DGTW-alpha for the top-quality tercile of small stocks is 14.02%, significant at the 5% level. Statistically significant positive DGTW-alphas are also determined for quality micro and large stocks. The quality analysis is also applied to a sample of Active Equity Mutual Funds’ stock holdings. Weak evidence of the quality return premium is detected at the fund level.

Authors


  •   Gallagher, David R. (external author)
  •   Gardner, Peter A. (external author)
  •   Schmidt, Camille (external author)
  •   Walter, Terry S.

Publication Date


  • 2014

Citation


  • Gallagher, D. R., Gardner, P. A., Schmidt, C. H. & Walter, T. S. (2014). Quality investing in an Australian context. Australian Journal of Management, 39 (4), 615-643.

Scopus Eid


  • 2-s2.0-84911080498

Ro Metadata Url


  • http://ro.uow.edu.au/buspapers/1183

Number Of Pages


  • 28

Start Page


  • 615

End Page


  • 643

Volume


  • 39

Issue


  • 4

Abstract


  • This study extends an examination of Quality investing in the US to the Australian market. Specifically, a Quality score is computed as the aggregate of eight fundamental accounting metrics. An investment strategy investing in the highest (lowest) quality stock quintile, that is, Quintile 5 (1) generates an average annual Daniel, Grinblatt, Titman and Wermers (DGTW)-adjusted alpha of 6.37% (−7.98%), which is significant at the 5% level over April 2000–March 2010. A two-way segmentation based on size first, and quality second, reveals that the strong positive quality effect is primarily driven by small stocks, as the average DGTW-alpha for the top-quality tercile of small stocks is 14.02%, significant at the 5% level. Statistically significant positive DGTW-alphas are also determined for quality micro and large stocks. The quality analysis is also applied to a sample of Active Equity Mutual Funds’ stock holdings. Weak evidence of the quality return premium is detected at the fund level.

Authors


  •   Gallagher, David R. (external author)
  •   Gardner, Peter A. (external author)
  •   Schmidt, Camille (external author)
  •   Walter, Terry S.

Publication Date


  • 2014

Citation


  • Gallagher, D. R., Gardner, P. A., Schmidt, C. H. & Walter, T. S. (2014). Quality investing in an Australian context. Australian Journal of Management, 39 (4), 615-643.

Scopus Eid


  • 2-s2.0-84911080498

Ro Metadata Url


  • http://ro.uow.edu.au/buspapers/1183

Number Of Pages


  • 28

Start Page


  • 615

End Page


  • 643

Volume


  • 39

Issue


  • 4