Quality investing in Asian stock markets

We examine two quality investing strategies using gross profitability (GP) or FSCORE, respectively, over the period of 2000–2016 in Hong Kong, Japan, Korea, Singapore and Taiwan stock markets. We find that the high‐quality stocks generally earn positive returns in these markets. Both FSCORE and GP are significantly positively associated with subsequent stock returns in the cross‐sectional regressions. We also find that financial institutions as sophisticated investor concern about stock quality. The actively managed institutions buy significantly more high‐quality stocks than low‐quality stocks in each of five Asian markets. The trading pattern is not significant in passively managed institutions.