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Country selection strategies based on quality

Adam Zaremba (Poznan University of Economics, Poznan, Poland)

Managerial Finance

ISSN: 0307-4358

Article publication date: 7 December 2015




The purpose of this paper is to examine country-level parallels of the stock-level anomalies related to quality, i.e. profitability, leverage, liquidity, accruals, payout and turnover.


The study uses sorting and cross-sectional tests within a sample of 77 countries over the period of 1999-2014.


Markets populated with low-leveraged and cash-rich companies significantly outperform highly leveraged and cash-poor markets, respectively. The both cross-sectional patterns are stronger across small markets than across large ones. Furthermore, additional sorts on leverage and profitability markedly improve performance of cross-national value strategies. Finally, markets with companies with high-cash holdings earn additional premium in times of tight liquidity conditions.

Practical implications

Considering the diminishing benefits of international diversification in recent decades, investors should consider the country-level quality strategies in a strategic asset allocation, and not to postpone them to a later stage of the investment process. Furthermore, investments in cash-rich markets provide a hedge against liquidity distress.


The first study to comprehensively examine country-level quality effects across global stock markets.



JEL Classification —G11, G12, G15

This paper is a part of the project no. 2014/15/D/HS4/01235 financed by the National Science Centre of Poland.


Zaremba, A. (2015), "Country selection strategies based on quality", Managerial Finance, Vol. 41 No. 12, pp. 1336-1356.



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