Global multi-factor investing is a passion of ours, and as such, we like to pay attention to what others are writing on the subject. In a recent blog post on ETF.com, Larry Swedroe provided a nice summary of a couple of papers that show that Quality is another factor that explains returns in global equity markets. His comments can be found here.
In particular, the paper by Kozlov and Petajisto was interesting to us, as it makes three key points. First, Quality works in global markets. Second, Quality pairs nicely with Value to create diversification benefits for investors. Third, using multiple measures of Quality is superior to using a single factor. The original paper can be found here.
This analysis is done on Developed Markets, and is based on regional groupings of North America, Europe, Japan and Asia Pacific. Of course, we would have loved to see how the analysis played out at a cross-country level, but the geographic groupings was a nice enhancement from traditional analyses that only look at stocks within a particular country.
The bottom line is that this is a nice validation of the use of multiple quality (fundamental) factors in our country model. We look forward to more research that includes Emerging Markets in addition to Developed Markets, and further work on cross-country factor effects.
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