What Is Quality Minus Junk (QMJ)?

QMJ is a factor from AQR that goes long high-quality stocks and short low-quality (“junk”) stocks. Quality is defined as a composite of profitability, growth, safety (low risk) and payout — companies that are profitable, stable, growing and shareholder-friendly. The factor captures the empirical finding that high-quality firms earn higher risk-adjusted returns than junk, even though investors arguably should pay a premium for quality.

Example: QMJ carried the largest weight (37%) in Green Lark’s Sharpe-optimal long-only factor portfolio.

Literature and references:

• Clifford S. Asness, Andrea Frazzini and Lasse Heje Pedersen, Quality Minus Junk, Review of Accounting Studies, 2019.

See also

• AQR

• Factor investing

• Betting Against Beta (BAB)