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Global market inefficiencies

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Bartram, Söhnke M. and Grinblatt, Mark (2021) Global market inefficiencies. Journal of Financial Economics, 139 (1). pp. 234-259. doi:10.1016/j.jfineco.2020.07.011 ISSN 0304-405X.

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Official URL: https://doi.org/10.1016/j.jfineco.2020.07.011

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Abstract

Using point-in-time accounting data, we estimate monthly fair values of 25,000+ stocks from 36 countries. A trading strategy based on deviations from fair value earns significant risk-adjusted returns (“alpha”) in most regions, especially the Asia Pacific, that are unrelated to known anomalies. The strategy’s 40-70 basis point per month alpha difference between emerging and developed markets contrast with prior research findings. A country’s pre-transaction-cost alpha is positively related to its trading costs, but exceeds country-specific institutional trading costs. Thus, global equity markets are inefficient, but relatively less so in countries with quantifiable market frictions, particularly trading costs, that deter arbitrageurs.

Item Type: Journal Article
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Q Science > QA Mathematics
Divisions: Faculty of Social Sciences > Warwick Business School > Finance Group
Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): International finance, Valuation, Capital assets pricing model, Transaction costs, Principal components analysis
Journal or Publication Title: Journal of Financial Economics
Publisher: Elsevier Science BV
ISSN: 0304-405X
Official Date: January 2021
Dates:
DateEvent
January 2021Published
22 July 2020Available
25 October 2019Accepted
Volume: 139
Number: 1
Page Range: pp. 234-259
DOI: 10.1016/j.jfineco.2020.07.011
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
Date of first compliant deposit: 12 November 2019
Date of first compliant Open Access: 22 January 2022
RIOXX Funder/Project Grant:
Project/Grant IDRIOXX Funder NameFunder ID
UNSPECIFIEDPortfolio Construction ForumUNSPECIFIED
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