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What Is Quality?

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  • Jason Hsu
  • Vitali Kalesnik
  • Engin Kose

Abstract

Unlike standard factors, such as value, momentum, and size, “quality” lacks a commonly accepted definition. Practitioners, however, are increasingly gravitating to this style factor. They define quality to be various signals or combinations of signals—some that have been thoroughly explored in the academic literature and others that have received limited attention. Among a comprehensive group of the quality categories used by practitioners, we find that profitability, accounting quality, payout/dilution, and investment tend to be associated with a return premium whereas capital structure, earnings stability, and growth in profitability show little evidence of a premium. Profitability and investment-related characteristics tend to capture most of the quality return premium.Disclosure: The authors report no conflicts of interest. Editor’s Note Submitted 11 July 2018Accepted 25 October 2018 by Stephen J. Brown

Suggested Citation

  • Jason Hsu & Vitali Kalesnik & Engin Kose, 2019. "What Is Quality?," Financial Analysts Journal, Taylor & Francis Journals, vol. 75(2), pages 44-61, April.
    • Handle: RePEc:taf:ufajxx:v:75:y:2019:i:2:p:44-61
    DOI: 10.1080/0015198X.2019.1567194
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