Investor sentiment, limits on arbitrage, and the performance of cross-country stock market anomalies

Adam Zaremba

Abstract

The 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.
Author Adam Zaremba (WZ / KIiRK)
Adam Zaremba,,
- Department of Investment and Capital Markets
Journal seriesJournal of Behavioral and Experimental Finance, ISSN 2214-6350, (0 pkt)
Issue year2016
Vol9
Pages136-163
Publication size in sheets1.35
Keywords in EnglishAnomalies, Country asset allocation, Return predictability, Asset pricing, Limits on arbitrage, Sentiment
DOIDOI:10.1016/j.jbef.2015.11.007
URL http://dx.doi.org/10.1016/j.jbef.2015.11.007
Languageen angielski
Score (nominal)5
Score sourcejournalList
ScoreMinisterial score = 0.0, 10-12-2019, ArticleFromJournal
Ministerial score (2013-2016) = 5.0, 10-12-2019, ArticleFromJournal
Publication indicators WoS Citations = 11
Citation count*32 (2020-08-03)
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* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.
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