Abstract

http://ssrn.com/abstract=2312432
 
 

References (49)



 


 



Quality Minus Junk


Clifford S. Asness


AQR Capital Management, LLC

Andrea Frazzini


AQR Capital Management, LLC

Lasse Heje Pedersen


New York University (NYU); Copenhagen Business School; AQR Capital Management, LLC; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

June 19, 2014


Abstract:     
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.

Number of Pages in PDF File: 65

Keywords: Quality Investing, Quality Minus Junk, QMJ

JEL Classification: G10, G11, G12

working papers series


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Date posted: August 19, 2013 ; Last revised: August 3, 2014

Suggested Citation

Asness, Clifford S. and Frazzini, Andrea and Pedersen, Lasse Heje, Quality Minus Junk (June 19, 2014). Available at SSRN: http://ssrn.com/abstract=2312432 or http://dx.doi.org/10.2139/ssrn.2312432

Contact Information

Cliff S. Asness
AQR Capital Management, LLC ( email )
Two Greenwich Plaza, 3rd Floor
Greenwich, CT 06830
United States
203-742-3601 (Phone)
203-742-3101 (Fax)
HOME PAGE: http://www.aqrcapital.com
Andrea Frazzini (Contact Author)
AQR Capital Management, LLC ( email )
Two Greenwich Plaza, 3rd Floor
Greenwich, CT 06830
United States
203-742-3894 (Phone)
203-742-3394 (Fax)
HOME PAGE: http://www.econ.yale.edu/~af227/
Lasse Heje Pedersen
New York University (NYU) ( email )
Stern School of Business, Dept. of Finance
44 West 4th St, Suite 9-190
New York, NY 10003-711
United States
HOME PAGE: http://pages.stern.nyu.edu/~lpederse/
Copenhagen Business School ( email )
Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark
AQR Capital Management, LLC ( email )
Greenwich, CT
United States
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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