Quality Investing in an Australian Context

Posted: 14 Nov 2014

See all articles by Peter Gardner

Peter Gardner

Plato Investment Management

Camille Schmidt

SuperRatings

Terry S. Walter

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

David R. Gallagher

Rozetta Institute

Multiple version iconThere are 2 versions of this paper

Date Written: November 13, 2014

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

Suggested Citation

Gardner, Peter and Schmidt, Camille and Walter, Terry Stirling and Gallagher, David R., Quality Investing in an Australian Context (November 13, 2014). Australian Journal of Management, Vol. 39, No. 4, 2014, Available at SSRN: https://ssrn.com/abstract=2523918

Peter Gardner

Plato Investment Management ( email )

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

Camille Schmidt

SuperRatings

Australia

Terry Stirling Walter

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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

Haymarket
Sydney, NSW 2007
Australia
+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
Queensland
Australia

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

David R. Gallagher (Contact Author)

Rozetta Institute ( email )

Sydney

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