Limits to arbitrage, investor sentiment, and factor returns in international government bond markets
Adam Zaremba , Jan Jakub Szczygielski
AbstractThe perspective of behavioural finance is that anomalies in the cross-section of returns are driven by mispricing that arises from investor irrationality that cannot be easily arbitraged away. In this study, we examine the implications of this for international government bond markets. Using data for 25 countries for the years 1992–2015, we replicate multiple factor strategies that represent four major return drivers: defensive (low-risk), carry, value and momentum. We investigate the relationships between the performance of these strategies and market-wide measures of limits to arbitrage and investor sentiment. We find that the defensive strategy performs best during tight arbitrage conditions whereas severe limits to arbitrage negatively affect momentum profits.
|Journal series||Ekonomska Istrazivanja-Economic Research, ISSN 1331-677X, e-ISSN 1848-9664, (N/A 70 pkt)|
|Publication size in sheets||0.8|
|Keywords in Polish||rynki międzynarodowe, obligacje skarbowe, anomalie rynku kapitałowego, ograniczenia arbitrażu, nastroje inwestorów, prognozowanie stóp zwrotu|
|Keywords in English||international markets, government bonds, anomalies, limits to arbitrage, investor sentiment, return predictability|
|Score||= 70.0, 07-04-2020, ArticleFromJournal|
|Publication indicators||= 0; : 2018 = 0.775; : 2017 = 1.137 (2) - 2017=0.839 (5)|
|Citation count*||1 (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.