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Global Market Inefficiencies

Söhnke Bartram and Mark Grinblatt

No 14232, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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, 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 (pit); Transaction costs; Principal components; Instrumented principal components analy-sis (ipca) (search for similar items in EconPapers)
JEL-codes: G11 G14 G15 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-ifn
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