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Discussion Paper Details

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Title: Global Market Inefficiencies

Author(s): S�hnke M Bartram and Mark Grinblatt

Publication Date: December 2019

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

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Bartram, S and Grinblatt, M. 2019. 'Global Market Inefficiencies'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14232