Quality Investing in Indonesian Stock Market

This research examines whether quality investing in Indonesian stock market could generate abnormal return.The quality score is calculated from following criteria: profitability, growth, and safety.From the quality score, we construct portfolio of highest quality stocks, lowest quality (junk) stocks, and based on quality minus junk investment strategy which long quality portfolio and short junk portfolio.Using stocks listed at the Indonesia Stock Exchange from 2009 until 2019, we run regression test with Ordinary Least Square method and compute alphas with respect to single index model, three factor model, and four factor model to find whether constructed portfolio can provide abnormal return.This research find that quality portfolio can consistently earn significant, positive abnormal return of 1.1% to 1.2%.In contrary, this research does not find that junk and quality minus junk portfolio could prove significant abnormal return.These findings can give evidence that investor should consider stocks with high quality to achieve abnormal return when investing in the Indonesian stock market and avoid stocks with low quality.