Abstract
We conduct an extensive literature review into proxies of profitability, growth, safety and ESG that are linked to quality, since quality is missing a univariate definition within factor investing. The factors that positively impact German stock prices are combined into a composite quality score. While the factors profitability, growth and safety have a positive impact on a firm’s stock price, surprisingly, the ESG factor does not. We show that quality firms command a higher stock price, even after controlling for additional variables. Based on our definition of quality, we create value-weighted and equal-weighted quality-sorted portfolios for the German market. As the results are inconclusive, we follow the approach of related literature in constructing portfolios conditionally sorted first on size and then on quality. This approach shows significant risk-adjusted returns for both long and long-short investors, predominantly in our small sample. These results are robust for different model specifications. Overall, quality stocks consistently outperform junk stocks in our sample. Quality investing strategies in Germany are profitable with an appropriate definition of quality.
Uddannelser | Cand.merc.oecon Advanced Economics and Finance, (Kandidatuddannelse) Afsluttende afhandling |
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Sprog | Engelsk |
Udgivelsesdato | 2022 |
Antal sider | 121 |
Vejledere | Anders Bjerre Trolle |