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

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  • 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.

Suggested Citation

  • Zaremba, Adam & Umutlu, Mehmet & Maydybura, Alina, 2020. "Where have the profits gone? Market efficiency and the disappearing equity anomalies in country and industry returns," Journal of Banking & Finance, Elsevier, vol. 121(C).
    • Handle: RePEc:eee:jbfina:v:121:y:2020:i:c:s0378426620302284
    DOI: 10.1016/j.jbankfin.2020.105966
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    More about this item

    Keywords

    Equity anomalies; Return predictability; International investment; Country returns; Industry returns; Investor learning; Market efficiency; Value; Size; Momentum; Low-risk; Seasonality; Long-run reversal; Behavioral finance; Structural breaks;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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