Quality investing in an Australian context

David Gallagher, Peter A Gardner, Camille H Schmidt and Terry Walter ()
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Peter A Gardner: Plato Investment Management, Australia
Camille H Schmidt: Macquarie Graduate School of Management, Australia; Capital Markets CRC Limited, Australia

Australian Journal of Management, 2014, vol. 39, issue 4, 615-643

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.

Keywords: Active management; investment performance; fundamental analysis; mutual funds; quality; stock holdings (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:39:y:2014:i:4:p:615-643

DOI: 10.1177/0312896213501180

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