Quality Minus Junk

Clifford S. Asness, Andrea Frazzini, Lasse Heje Pedersen

Research output: Contribution to conferencePaperResearchpeer-review


We define a quality security as one that has characteristics that, all-else-equal, an investor should be willing to pay a higher price for: stocks that are safe, profitable, growing, and well managed. High-quality stocks do have higher prices on average, but not by a very large margin. Perhaps because of this puzzlingly modest impact of quality on price, high-quality stocks have high risk-adjusted returns. Indeed, a quality-minus-junk (QMJ) factor that goes long high-quality stocks and shorts low-quality stocks earns significant risk-adjusted returns in the U.S. and globally across 24 countries. The price of quality – i.e., how much investors pay extra for higher quality stocks – varies over time, reaching a low during the internet bubble. Further, a low price of quality predicts a high future return of QMJ. Finally, controlling for quality resurrects the otherwise moribund size effect.
Original languageEnglish
Publication date2015
Number of pages65
Publication statusPublished - 2015
EventThe 75th Annual Meeting of American Finance Association. AFA 2015 - Westin Copley, Boston, United States
Duration: 3 Jan 20155 Jan 2015
Conference number: 75


ConferenceThe 75th Annual Meeting of American Finance Association. AFA 2015
LocationWestin Copley
Country/TerritoryUnited States
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