A Return Based Measure of Firm Quality

Ravi Jagannathan and Yang Zhang

No 27859, NBER Working Papers from National Bureau of Economic Research, Inc

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)

JEL-codes: G0 G10 G11 G12 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-cfn and nep-rmg
Note: AP
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Citations: View citations in EconPapers (1)

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