Global Mispricing Matters

76 Pages Posted: 10 Mar 2023 Last revised: 17 Apr 2023

See all articles by Fuwei Jiang

Fuwei Jiang

Xiamen University

Hongkui Liu

Chinese Academy of Social Sciences (CASS) - Institute of Economics

Guohao Tang

Hunan University - College of Finance and Statistics

Jiasheng Yu

Central University of Finance and Economics (CUFE) - School of Finance

Date Written: March 10, 2023

Abstract

This paper constructs a global anomaly index based on the 153 long-short portfolio returns of 33 stock markets. We find that global anomaly index is a strong negative predictor of future aggregate stock returns in international markets both in- and out-of-sample. It captures the common changes in overpricing across stock markets, and is not subsumed by the extant well-known stock return predictors. The predictive power of global anomaly index arises from globally widespread stronger mispricing correction persistence for overpricing relative to underpricing, and partly from the predictive ability to forecast future sentiment-changes. We provide evidence that global mispricing is an important pricing factor for predicting aggregate stock returns around the world.

Keywords: Long-short anomaly portfolio return, International stock markets, Return predictability, Global mispricing, Sentiment

JEL Classification: G12, G14, G15

Suggested Citation

Jiang, Fuwei and Liu, Hongkui and Tang, Guohao and Yu, Jiasheng, Global Mispricing Matters (March 10, 2023). Available at SSRN: https://ssrn.com/abstract=4384265 or http://dx.doi.org/10.2139/ssrn.4384265

Fuwei Jiang

Xiamen University ( email )

Xiamen, Fujian 361005
China

Hongkui Liu

Chinese Academy of Social Sciences (CASS) - Institute of Economics

Guohao Tang

Hunan University - College of Finance and Statistics ( email )

Lushan Road (S), Yuelu District
Changsha, Hunan 410006
China

Jiasheng Yu (Contact Author)

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Shahe Higher Education Park, Changping District
Beijing, 102206
China

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