Market Development, Information Diffusion and the Global Anomaly Puzzle
Cai, Charlie Xiaowu and Keasey, Kevin and Li, Peng and Zhang, Qi, 2021,Market Development, Information Diffusion and the Global Anomaly Puzzle, Journal of Financial and Quantitative Analysis, Forthcoming.
64 Pages Posted: 30 Sep 2016 Last revised: 4 Feb 2021
Date Written: December 15, 2020
Previous literature finds that anomalies are at least as prevalent in developed markets as in emerging markets; namely, the global anomaly puzzle. We show that while market development and information diffusion are linearly related, information diffusion has a nonlinear impact on anomalies. This is consistent with theoretical developments concerning the process of information diffusion. In extremely low efficiency regimes, without newswatchers sowing the seeds of price discovery and ensuring the long-run convergence of price to fundamental, initial mispricing and subsequent correction will not occur. The concentration of emerging countries in low efficiency regimes provides an explanation to the puzzle. Video abstract https://youtu.be/u4NPHK5qDCY
Keywords: Asset Pricing, Anomalies, Behavioral Finance, Multi-Factor Models, International Evidence
JEL Classification: G12, G14, G15
Suggested Citation: Suggested Citation