Assignment Task

 

1.Introduction and background
Around 2013, Cliff Asness, the CEO of AQR published a working paper (later published as Asness et al., 20191) where he, together with other co-authors, introduced an investment factor called
“Quality”, based on investing in firms with:
• High profitability
• Strong growth
• Low risk and leverage

Frazzini et al. (2018)2 show that this factor largely mimics the investment style of Warren Buffet. This investment factor has become very popular and is used by a variety of investment companies, for example:
• iShares MSCI USA Quality Factor ETF
• Invesco S&P 500® Quality ETF
• AQR Large Cap Multi-Style Fund (where it seems to have replaced “profitability” from 2021).

2.Presentation of the Strategy
This should be a presentation of the economic intuition behind the quality factor. After reading this part the reader should:
• What fundamental economic concepts underpin this strategy.
• Understand what types of companies are the target of this strategy.
• Why should this strategy work? Are quality stock riskier? Is this an “anomaly”?

This part will be mainly descriptive (although, if you want, you may add a table and/or a graph if you need it to make a point). The intended audience is the Chief Investment Officer of your firm, so you can assume a high level of sophistication and a good understanding of finance.

3.Data
Together with the assignment you will find the following data files:
• QUALITY.zip contains the monthly data of the quality factor for a sample of US stocks.

• PROFIT.zip, GROWTH.zip and SAFETY.zip contain monthly data of the three sub-components of quality factor (Profitability, Growth and Safety) for a sample of US stocks.

All the factor are already normalized and winsorized.
• LEAD.zip contains monthly data on the leading economic indicator for the US Economy.
• Returns.zip contains the monthly (log-)returns for the US stocks.
• Market_cap.zip contains the monthly market capitalization for the US stocks.
• Names.zip contains the names and industry-affiliation of the US stocks

 

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  • Uploaded By : Brett
  • Posted on : May 07th, 2019
  • Downloads : 330

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