Investor sentiment, limits on arbitrage, and the performance of cross-country stock market anomalies
AbstractThe behavioral finance view of anomalies suggests that mispricing stems from investor irrationality that could not easily be arbitraged away. We test the implications of this concept at the country level. This study examines whether market-wide measures of investor sentiment and arbitrage constraints affect the performance of cross-country stock market anomalies. Thus, we first categorize and replicate at the country level a set of 50 parallels of stock-level anomalies documented in the academic literature. Having determined 15 of them to be reliable and robust sources of return, we investigate their relationship to the limits on arbitrage and market-wide sentiment. We observe that variation in market sentiment plays an important role in returns on cross-country value strategies, whereas tight arbitrage conditions negatively influence momentum profits.
|Journal series||Journal of Behavioral and Experimental Finance, ISSN 2214-6350, (0 pkt)|
|Publication size in sheets||1.35|
|Keywords in English||Anomalies, Country asset allocation, Return predictability, Asset pricing, Limits on arbitrage, Sentiment|
|Score|| = 0.0, 10-12-2019, ArticleFromJournal|
= 5.0, 10-12-2019, ArticleFromJournal
|Publication indicators||= 11|
|Citation count*||33 (2020-09-10)|
* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.