Where have the profits gone? Market efficiency and the disappearing equity anomalies in country and industry returns

Zaremba, Adam; Umutlu, Mehmet; Maydybura, Alina

Abstract

We are the first to demonstrate the decline in the cross-sectional predictability of country and industry returns in recent years. We examine 53 anomalies in country and industry indices from 64 markets for the years 1973–2018. The profitability of the strategies has significantly decreased recently, driven particularly by the disappearance of value and reversal effects. The phenomenon is strongest in large developed markets. Neither changes in country- and industry-specific risks, nor investor learning from the academic literature can explain the effect. Our findings support the view that the fall in return predictability is caused by the overall improvement in market efficiency.

Citation

Zaremba, A., Umutlu, M., & Maydybura, A. (2020). Where have the profits gone? Market efficiency and the disappearing equity anomalies in country and industry returns. Journal of Banking and Finance, 121, Article 105966. https://doi.org/10.1016/j.jbankfin.2020.105966

• Journal Article Type: Article
• Acceptance Date: Sep 28, 2020
• Online Publication Date: Sep 30, 2020
• Publication Date: 2020-12
• Deposit Date: Jan 29, 2023
• Journal: Journal of Banking & Finance
• Print ISSN: 0378-4266
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 121
• Article Number: 105966
• DOI: https://doi.org/10.1016/j.jbankfin.2020.105966