Skip to Main content Skip to Navigation
Preprints, Working Papers, ...

The Excess Returns of 'Quality' Stocks: A Behavioral Anomaly

Abstract : This note investigates the causes of the quality anomaly, which is one of the strongest and most scalable anomalies in equity markets. We explore two potential explanations. The "risk view", whereby investing in high quality firms is somehow riskier, so that the higher returns of a quality portfolio are a compensation for risk exposure. This view is consistent with the Efficient Market Hypothesis. The other view is the "behavioral view", which states that some investors persistently underestimate the true value of high quality firms. We find no evidence in favor of the "risk view": The returns from investing in quality firms are abnormally high on a risk-adjusted basis, and are not prone to crashes. We provide novel evidence in favor of the "behavioral view": In their forecasts of future prices, and while being overall overoptimistic, analysts systematically underestimate the future return of high quality firms, compared to low quality firms.
Complete list of metadatas

https://hal-hec.archives-ouvertes.fr/hal-01993422
Contributor : Antoine Haldemann <>
Submitted on : Thursday, January 24, 2019 - 9:10:19 PM
Last modification on : Tuesday, March 17, 2020 - 3:01:36 AM

Licence


Copyright

Identifiers

  • HAL Id : hal-01993422, version 1

Citation

Jean-Philippe Bouchaud, Ciliberti Stefano, Augustin Landier, Guillaume Simon, David Thesmar. The Excess Returns of 'Quality' Stocks: A Behavioral Anomaly. 2016. ⟨hal-01993422⟩

Share

Metrics

Record views

104