Quality Investing in an Australian Context

53 Pages Posted: 7 May 2013 Last revised: 29 Jan 2015

See all articles by David R. Gallagher

David R. Gallagher

Rozetta Institute

Peter Gardner

Plato Investment Management

Camille Schmidt


Terry S. Walter

University of Sydney; University of Technology, Sydney - School of Finance and Economics; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: December 11, 2013


This study extends an examination of Quality investing in the US (Gallagher et al., 2013) 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 i.e. Quintile 5 (1) generates an average annual 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: Mutual Funds, Active Management, Investment Performance, Fundamental Analysis, Quality, Stock Holdings

JEL Classification: G11, G23

Suggested Citation

Gallagher, David R. and Gardner, Peter and Schmidt, Camille and Walter, Terry Stirling, Quality Investing in an Australian Context (December 11, 2013). Australian Journal of Management, Vol. 39: 4, 2014, pp. 615-643, Available at SSRN: https://ssrn.com/abstract=2261464 or http://dx.doi.org/10.2139/ssrn.2261464

David R. Gallagher

Rozetta Institute ( email )


Peter Gardner

Plato Investment Management ( email )

Level 14, 167 Macquarie St
Sydney, New South Wales 2066

Camille Schmidt (Contact Author)



Terry Stirling Walter

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006

University of Technology, Sydney - School of Finance and Economics ( email )

Sydney, NSW 2007
+61 2 9514 3860 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=5373

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

HOME PAGE: http://www.firn.org.au

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics