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Local, Regional, or Global Asset Pricing?

Published online by Cambridge University Press:  11 January 2021

Fabian Hollstein Open the ORCID record for Fabian Hollstein [Opens in a new window]
Fabian Hollstein*
Affiliation:
Leibniz University Hannover School of Economics and Management
*
hollstein@fcm.uni-hannover.de (corresponding author)
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Abstract

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Analyzing several developed and emerging international markets, I test the ability of global, regional, and local models to explain a large set of 134 cross-sectional anomalies. My main finding is that both global and regional factor models create substantially larger average absolute alphas than local factor models. Annual (absolute) anomaly portfolio alphas are on average 1.7 and 1.1 percentage points higher, respectively, with global and regional than with local factor models. Even for the most recent period, there is no evidence of a catch-up of global and regional factor models. There is substantial potential for international diversification of anomaly strategies.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 1 , February 2022 , pp. 291 - 320
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

I thank Hendrik Bessembinder (the editor) and an anonymous referee for comments that helped greatly improve this article. All remaining errors are my own. This article was funded by the Deutsche Forschungsgemeinschaft (DFG) (project number 433352673). I also thank the Hannover Center for Finance e.V. for partly funding the Datastream and Worldscope databases.

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