Master thesis does quality matter (in emerging countries)? a cross-country analysis of different quality-based trading strategies and the evaluation of the price of quality with a focus on emerging markets.

Abstract

Given the theoretical foundation, as well as empirical support from previous studies, especially by Asness, Frazzini and Pedersen (2019), this research examines the effect of firm quality on scaled prices. The research is conducted using a sample of developed markets, as well as developing markets. The price of quality is significant across developed and developing markets. The second part of this research establishes a trading strategy of going long in high-quality firms and shorting low-quality firms. The strategy yields significant, positive alphas across all countries, but is subject to large tail risks. Thus, combining this strategy with other factor strategies improves risk-adjusted returns, and greatly reduces tail risks. The quality factor is found to be more pronounced in developing markets. Key words: Factor investing, trading strategies, asset pricing, momentum, quality, quality minus junk