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Limits to arbitrage and the MAX anomaly in advanced emerging markets

Mostafa Seif, Paul Docherty and Abul Shamsuddin

Emerging Markets Review, 2018, vol. 36, issue C, 95-109

Abstract: Evidence of a negative relationship between extreme positive returns and future returns has been reported in developed markets (Bali, Cakici, & Whitelaw, 2011; Zhong & Gray, 2016). This study examines this “MAX anomaly” across advanced emerging markets, which are characterised by a higher level of limits to arbitrage compared with developed markets, but lower financial frictions than their secondary emerging counterparts. The MAX anomaly is shown to be larger in magnitude in advanced emerging markets compared with developed markets. Our results support the proposition that the MAX anomaly is a pervasive anomaly that is related to mispricing.

Keywords: MAX anomaly; Limits of arbitrage; Mispricing; Emerging markets (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:ememar:v:36:y:2018:i:c:p:95-109