Abstract We introduce two innovative investment strategies: modified quality () and modified cheapness () investing. Both strategies significantly outperform traditional quality, short‐term reversal, and value investing approaches. The strategy identifies market‐validated quality, while exploits short‐term reversals and value signals, filtering out undervalued but fundamentally weak firms. Superior performance stems from blending fundamental information with market perceptions, incorporating industry effects, and market‐timing dynamics. Transaction cost analysis reveals that realistic costs substantially narrow return spreads, underscoring the importance of effective cost management.
Jiang et al. (Wed,) studied this question.