Quality Acceleration And Cross-Sectional Returns

Mining high-quality stocks is the persistent investment goal of investors in the securities market.Based on a dynamic perspective,investors’ preference for stocks with better development prospects implies their attention to changes in the company’s quality.Based on the Chinese A-share market,this study discusses the correlation between company-level quality acceleration and stock cross-sectional returns.Besides,quality acceleration is defined as the change in a company’s quality growth from quarter to quarter.The empirical findings of this study indicate that in the Chinese A-share market,there is a significant quality acceleration effect,which means that quality acceleration can positively predict subsequent stock cross-sectional returns,and that this power is not due to the quality effect or the quality growth effect.Further analysis reveals that the quality acceleration effect gradually diminishes and eventually vanishes as the holding period increases,but it does not reverse in the long term.Besides,this study explores the driving factors of the quality acceleration effect based on investor sentiment and arbitrage limits.The empirical results indicate that the quality acceleration effect is stronger during periods of high investor sentiment and weakens or even disappears during periods of low investor sentiment.However,facing higher arbitrage limits is not the driving factor of the quality acceleration effect.What’s more,through empirical analysis based on the sub-sample period and the alternative construction method of quality acceleration,it is proved that the above conclusion has great robustness.The findings of this study help to understand investors’ decision-making behavior from a more dynamic perspective.