Quality Investing in CEE Emerging Markets

Business, Management and Education, vol. 12, no. 2, pp. 159-180.

22 Pages Posted: 15 May 2015

See all articles by Adam Zaremba

Adam Zaremba

Montpellier Business School; Poznan University of Economics and Business; University of Cape Town

Date Written: 2014

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.

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

JEL Classification: G11, G12, G14, G15

Suggested Citation

Zaremba, Adam, Quality Investing in CEE Emerging Markets (2014). Business, Management and Education, vol. 12, no. 2, pp. 159-180., Available at SSRN: https://ssrn.com/abstract=2606199

Adam Zaremba (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000
France

HOME PAGE: http://sites.google.com/view/adamzaremba

Poznan University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

University of Cape Town

Cape Town
South Africa

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