Country Selection Strategies Based on Quality

Managerial Finance, 2015, 12, 1336-1356.

41 Pages Posted: 12 Dec 2014 Last revised: 10 May 2016

See all articles by Adam Zaremba

Adam Zaremba

Poznań University of Economics and Business; University of Dubai

Date Written: June 27, 2015


Purpose: The aim of this paper is to examine country-level parallels of the stock-level anomalies related to quality, i.e. profitability, leverage, liquidity, accruals, payout and turnover.

Design/methodology/approach: The study uses sorting and cross-sectional tests within a sample of 77 countries over the period of 1999 to 2014.

Findings: Markets populated with low-leveraged and cash-rich companies significantly outperform highly leveraged and cash-poor markets respectively. The both cross-sectional patterns are stronger across small markets than across large ones. Furthermore, additional sorts on leverage and profitability markedly improve performance of cross-national value strategies. Finally, markets with companies with high cash holdings earn additional premium in times of tight liquidity conditions.

Practical implications: Considering the diminishing benefits of international diversification in recent decades, investors should consider the country-level quality strategies in a strategic asset allocation, and not to postpone them to a later stage of the investment process. Furthermore, investments in cash-rich markets provide a hedge against liquidity distress.

Originality/value: The first study to comprehensively examine country-level quality effects across global stock markets.

Keywords: quality investing, leverage, cash-to-assets ratio, profitability, inter-market effects, cross-section of returns, factor returns, international diversification, country selection strategies, factor investing

JEL Classification: G11, G12, G15

Suggested Citation

Zaremba, Adam, Country Selection Strategies Based on Quality (June 27, 2015). Managerial Finance, 2015, 12, 1336-1356.. Available at SSRN: or

Adam Zaremba (Contact Author)

Poznań University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875


University of Dubai ( email )

Academic City
Dubai, 14143
United Arab Emirates


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