Swedroe: Published Results Impact Future Results

October 24, 2016

International Evidence

Heiko Jacobs and Sebastian Muller contribute to the literature on returns to anomalies with their July 2016 study, “Anomalies Across the Globe: Once Public, No Longer Existent?” Their study covered the pre- and post-publication return predictability of 138 anomalies in 39 stock markets that account for, on average, almost 60% of the global equity market capitalization and more than 70% of the global GDP. The data covered the period January 1981 to December 2013.

While their findings for the United States were similar to those of the aforementioned study by McLean and Pontiff, showing declining premiums, none of the 38 international markets yielded a significant post-publication decline in anomaly returns. In fact, the authors found that returns to anomalies in international markets actually had increased—equally (value) weighted returns rose from 34 (28) basis points between 1981 and 1990 to 56 (40) basis points between 2001 and 2013. Following is a summary of their findings:

  • Averaged over the entire sample period, long/short anomaly returns in various subsets of international markets turn out to be similar in magnitude to estimates for the U.S. market.
  • Many anomalies tend to be a global phenomenon and thus are unlikely to be driven mainly by data mining.
  • In almost every country, equally weighted portfolios generate greater returns than value-weighted portfolios. This is consistent with the notion that both mispricing and limits to arbitrage tend to be stronger for smaller stocks.
  • For the majority of countries, pooled long/short returns are statistically significantly positive at the 1% level.
  • There are large differences between the U.S. and international markets with respect to subperiods in both calendar time (i.e., time trends) and in event time (i.e., publication effects).

Jacobs and Muller concluded that, while their findings do point to a strong negative time trend, as well as to increased postpublication arbitrage trading in the United States, they did not find reliable evidence for an arbitrage-driven decrease in anomaly profitability in international markets.

 

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