Analyzing the quality factor for Brazil

Abstract

Investments in Brazil are increasingly allocated to the stock market, at the expense of more conservative investments. Would finding higher-quality assets allow investors to increase their risk-return ratio? We analyze quality with several metrics, including the quality-minus-junk (QMJ) factor for Brazil. We find that quality companies are valued more by investors, with a higher price-to-book ratio. A portfolio of shares of higher quality shows a significant positive return over the period analyzed, adjusted for several risk factors. The sample members classified as quality companies remained within this classification over time.