Quality investing is a strategy where investors look for companies that have strong and enduring characteristics. These characteristics often include robust financial health, strong management, a competitive advantage, and the potential for growth and profitability over the long term. The main idea is to invest in companies of "high quality" rather than just looking for stocks that are cheap or undervalued. This strategy often involves a longer-term perspective, as quality companies are expected to provide stable and consistent returns over time.

In simpler terms, imagine you're shopping for a car. Quality investing would be akin to choosing a vehicle known for its reliability, fuel efficiency, and excellent safety ratings, rather than going for the cheapest car you can find.

Research in the realm of quality investing has grown over the years. Scholars and financial analysts have sought to define and measure 'quality' in a more systematic and rigorous manner. Various metrics and frameworks have been developed to evaluate the quality of companies from an investment perspective.

The first challenge is of course, defining ‘Quality’. Researchers have collaborated with practitioners to define what constitutes quality in a company. Common attributes include strong and consistent profitability, low debt levels, efficient use of capital and stable earnings.

The next step, equally challenging, is to measure quality. Quality can tend to mean different things to different people. However, various frameworks and parameters have been accepted as universally acceptable over time. Common parameters include return on equity (ROE), consistency of profits and dividends, measures of cash flow and debt to equity ratios, among others.

These definitions and the parameters together constitute the ‘Quality Factor”, which focuses on quality as a distinct factor that can drive stock returns. The quality factor isolates the returns attributable to investing in high-quality stocks. There's substantial research analysing the performance of quality investing strategies over time, across different market conditions, and in comparison to other investing strategies like value or momentum investing.

Quality investing is also associated with lower risk compared to other strategies, and research has explored the risk-return profile of quality investing, often finding a favourable trade-off. Research has also explored how quality investing can be integrated with other investment strategies, such as value or momentum investing, to potentially enhance returns or reduce risk. In addition, the behavioural aspects of quality investing have also been explored, investigating how investor perceptions and biases can impact the assessment of quality and subsequent investment decisions.

The field is continually evolving with ongoing research aiming to refine the understanding and application of quality investing, exploring its implications across different market segments and geographic regions, and integrating newer data and analytical techniques like machine learning to enhance quality assessment and investment decision-making.