Söhnke Bartram (Warwick Business School): Global market inefficiencies

Söhnke Bartram (Warwick Business School): Global market inefficiencies

Co-author: Mark Grinblatt

Abstract

We use point-in-time accounting data to estimate monthly fair values of more than 25,000 stocks from 36 countries over more than two decades. Trading on deviations from fair value, which do not proxy for known anomalies, yields statistically and economically significant risk-adjusted returns in most regions, especially the Asia Pacific and emerging markets countries. Pre-transaction cost alphas are positively related to trading costs, but in most regions alphas also significantly exceed country-specific trading costs. Thus, global equity markets are inefficient, but are relatively less efficient in counties with quantifiable market frictions, particularly trading costs, that deter arbitrageurs.

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