Economic Aggregation of Return Signals in Global Markets

Abstract

Based on mutual economics, I aggregate 85 equity return signals into five composites: momentum, value, investment, profitability, and liquidity. Economic aggregation aligns the primary return drivers of individual signals, resulting in composites that demonstrate greater robustness and precision in return predictability. These composites are more independent of one another, less heterogeneous across developed and emerging markets, and show stronger evidence of growth rather than decay over time. The results contribute to the knowledge of global anomalies and favor a mispricing explanation for momentum and a risk-pricing explanation for the other four.

Keywords: G11, G15, G17