Global Market Inefficiencies

69 Pages Posted: 14 Jul 2017 Last revised: 30 Aug 2021

See all articles by Söhnke M. Bartram

Söhnke M. Bartram

University of Warwick; Centre for Economic Policy Research (CEPR)

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area; Yale University - International Center for Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 6 versions of this paper

Date Written: June 24, 2018

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, Theil-Sen, transaction costs, principal components, IPCA

JEL Classification: G11, G12, G14

Suggested Citation

Bartram, Söhnke M. and Grinblatt, Mark, Global Market Inefficiencies (June 24, 2018). Journal of Financial Economics, Vol. 139 (1), January 2021, 234–259., Available at SSRN: https://ssrn.com/abstract=3002573 or http://dx.doi.org/10.2139/ssrn.3002573

Söhnke M. Bartram (Contact Author)

University of Warwick ( email )

Warwick Business School
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HOME PAGE: http://go.warwick.ac.uk/sbartram/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-1098 (Phone)
310-206-5455 (Fax)

Yale University - International Center for Finance

Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER)

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