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Global Return Premiums on Earnings Quality, Value, and Size

33 Pages Posted: 21 Nov 2012 Last revised: 8 Jan 2013

Max Kozlov

BlackRock

Antti Petajisto

New York University (NYU) - Department of Finance; Yale School of Management; BlackRock, Inc

Date Written: January 7, 2013

Abstract

We investigate the return premium on stocks with high earnings quality using a broad and recent global dataset covering all developed markets from 7/1988 to 6/2012. We find that a simple strategy that is long stocks with high earnings quality and short stocks with low earnings quality produces a higher Sharpe ratio than the overall market or similar strategies betting on value or small stocks. This result holds both in the overall sample as well as in the more recent time period since 2005. Because the global earnings quality portfolio has a negative correlation with a value portfolio, an investor wishing to invest in both exposures can achieve significant diversification benefits.

Keywords: earnings quality, value, international, accruals

JEL Classification: G10, G12, G15

Suggested Citation

Kozlov, Max and Petajisto, Antti, Global Return Premiums on Earnings Quality, Value, and Size (January 7, 2013). Available at SSRN: https://ssrn.com/abstract=2179247 or http://dx.doi.org/10.2139/ssrn.2179247

Max Kozlov

BlackRock ( email )

400 Howard St
San Francisco, CA 94105
United States
415-670-2000 (Phone)

HOME PAGE: http://www.blackrock.com

Antti Petajisto (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0378 (Phone)

HOME PAGE: http://www.petajisto.net/

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

HOME PAGE: http://www.petajisto.net/

BlackRock, Inc ( email )

400 Howard St
San Francisco, CA 94105
United States
415-670-7911 (Phone)

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