Global market inefficiencies

Söhnke Bartram and Mark Grinblatt

Journal of Financial Economics, 2021, vol. 139, issue 1, 234-259

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 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, particularly in countries with quantifiable market frictions, like trading costs, that deter arbitrageurs.

Keywords: International finance; Valuation; Asset pricing; Market efficiency; Fundamental analysis; Point-in-time; Transaction costs; Principal components; Instrumented principal components analysis (search for similar items in EconPapers)
JEL-codes: G11 G14 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Global Market Inefficiencies (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:139:y:2021:i:1:p:234-259

DOI: 10.1016/j.jfineco.2020.07.011

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