Is informational inefficiency priced in stock markets? A comparison between the U.S. and Chinese cases

Baochen Yang, Fangzhan Xue, Yunpeng Su and Cheng Yan

Pacific-Basin Finance Journal, 2019, vol. 55, issue C, 222-238

Abstract: Using a sample of U.S. and Chinese stocks between July 1999 and June 2016, we investigate the pricing role of informational inefficiency in stock markets. We find that the relations between returns and the informational inefficiency factor statistically change from significantly positive, to insignificant, and further to significantly negative as informational efficiency increases. This finding provides new insights into the common belief that emerging markets are less efficient than developed markets. We propose new factor models for less efficient markets. Our conclusions are robust to alternative ways of sorting portfolios, to various subsample analyses, and to alternative factor models.

Keywords: Market efficiency; Entropy; Adaptive markets hypothesis (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:55:y:2019:i:c:p:222-238

DOI: 10.1016/j.pacfin.2019.04.005

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