Global Market Inefficiencies

61 Pages Posted: 14 Jan 2020

See all articles by Söhnke M. Bartram

Söhnke M. Bartram

Warwick Business School - Department of Finance; 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: December 2019

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: Asset Pricing, fundamental analysis, instrumented principal components analy-sis (IPCA), international finance, Market Efficiency, Point-in-Time (PIT), principal components, transaction costs, Valuation

JEL Classification: G11, G14, G15

Suggested Citation

Bartram, Söhnke M. and Grinblatt, Mark, Global Market Inefficiencies (December 2019). CEPR Discussion Paper No. DP14232. Available at SSRN: https://ssrn.com/abstract=3518570

Söhnke M. Bartram (Contact Author)

Warwick Business School - Department of Finance ( email )

Coventry, CV4 7AL
United Kingdom
+44 (24) 7657 4168 (Phone)
+1 425 952 1070 (Fax)

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)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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