Global market inefficiencies

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 stra...

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Bibliographic Details
Published in:Journal of financial economics 2021-01, Vol.139 (1), p.234-259
Main Authors: Bartram, Söhnke M., Grinblatt, Mark
Format: Article
Language:English
Subjects:
Asset pricing
Banks (Finance)
Business schools
Conferences and conventions
Costs
Economic policy
Emerging markets
Equity
Fair value
Financial analysts
Financial management
Fundamental analysis
Industrial efficiency
Instrumented principal components analysis
International finance
Market efficiency
Markets
Point-in-time
Pricing
Principal components
Research institutes
Risk adjustment
Securities markets
Securities trading
Seminars
Stocks
Trading
Transaction costs
Valuation
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Summary: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.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2020.07.011