Quality Dynamics in a Dynamic Economy

This research paper studies the quality factor within U.S equity markets from 1962 through 2018. Quality is a market characteristic that has explanatory power on the cross section of expected returns, often exhibiting high risk-adjusted returns and con- sistent benchmark outperformance when orchestrated as an investment strategy. The investigation of quality through the scope of portfolio analyses, linear regressions and xed-eects models gives license to this study to critique the presence, pricing and dimensional drivers of the factor. The research arms that a robust quality factor exists within the sample universe, and further provides convincing evidence entailing the drivers of this factor to be dynamic throughout the economic cycle. This inspec- tion ultimately positions the quality factor as an anomalous market characteristic that independently, and simultaneously, captures protability and safety fundamentals con- ditional on the surrounding economic environment.