Modified quality, short-term reversal, and value investing

Document Type

Article

Publication Date

1-1-2025

Publication Title

Journal of Financial Research

Abstract

We introduce two innovative investment strategies: modified quality ((Formula presented.)) and modified cheapness ((Formula presented.)) investing. Both strategies significantly outperform traditional quality, short-term reversal, and value investing approaches. The (Formula presented.) strategy identifies market-validated quality, while (Formula presented.) exploits short-term reversals and value signals, filtering out undervalued but fundamentally weak firms. Superior performance stems from blending fundamental information with market perceptions, incorporating industry effects, and market-timing dynamics. Transaction cost analysis reveals that realistic costs substantially narrow return spreads, underscoring the importance of effective cost management.

DOI

10.1111/jfir.70019

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