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Quality investing in CEE emerging markets

    Adam Zaremba Affiliation

Abstract

Using sorting, cross-sectional tests, regression, and tests of a monotonic relation, the study examines the return patterns related to seven distinct quality characteristics: accruals, bid-ask spread, balance sheet liquidity, profitability, leverage, payout ratio and turnover. The investigation of more than 1.300 stocks from 11 Central and Eastern European countries for the period 2002–2014 documents a strong gross-profitability premium and an inverted liquidity premium. Profitable and not heavily leveraged companies provide a partial hedge against market distress. Finally, the paper proposes quality spreads as a forecasting tool and shows that they have predictive abilities over quality premiums related to leverage, profitability and bid-ask spread.

Keyword : cross-section of stock returns, quality investing, CEE stock market, Central and Eastern Europe, gross profitability premium, liquidity premium, leverage, bid-ask spread, accruals

How to Cite
Zaremba, A. (2014). Quality investing in CEE emerging markets. Business, Management and Education, 12(2), 159-180. https://doi.org/10.3846/bme.2014.241
Published in Issue
Dec 23, 2014
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