The quality premium with leverage and liquidity constraints
Fecha
2021Versión
Acceso abierto / Sarbide irekia
Tipo
Artículo / Artikulua
Versión
Versión aceptada / Onetsi den bertsioa
Identificador del proyecto
Impacto
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10.1016/j.irfa.2021.101699
Resumen
This research analyzes the causes of the quality premium, one of the most intriguing and successful investment strategies in equity markets. While previous research has argued that psychological biases explain the performance of the quality minus junk factor, our paper analyzes a leverage constraint explanation within a rational risk-based framework. The quality factor is multidimensional in natu ...
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This research analyzes the causes of the quality premium, one of the most intriguing and successful investment strategies in equity markets. While previous research has argued that psychological biases explain the performance of the quality minus junk factor, our paper analyzes a leverage constraint explanation within a rational risk-based framework. The quality factor is multidimensional in nature, which suggests that a combination of risk, frictions, and behavioral biases is a reasonable explanation. Once we incorporate margin requirements and liquidity restrictions, we find that tighter conditions result in a higher intercept and a lower slope for the empirically implemented capital asset pricing model when using 10 quality-sorted portfolios. Our paper shows that, indeed, not only behavioral biases explain quality, but also market frictions account for its performance. [--]
Materias
Margin requirements,
Quality premium,
Funding constraints,
Liquidity constraints,
Security market line
Editor
Elsevier
Publicado en
International Review of Financial Analysis, 75 (2021) 101699
Departamento
Universidad Pública de Navarra/Nafarroako Unibertsitate Publikoa. Institute for Advanced Research in Business and Economics - INARBE /
Universidad Pública de Navarra. Departamento de Gestión de Empresas /
Nafarroako Unibertsitate Publikoa. Enpresen Kudeaketa Saila
Versión del editor
Entidades Financiadoras
The authors acknowledge financial support from the Ministry of Science, Innovation, and Universities through grant PGC2018-095072B-I00. In addition, Gonzalo Rubio acknowledges financial support from Generalitat Valencia grant Prometeo/2017/158, and Ana González Urteaga acknowledges financial support from the Ministry of Science and Innovation through grant PID2019-104304-GB-I00/AEI/10.13039/501100011033 and UPNA Research Grant for Young Researchers, Edition 2018.