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Is informational inefficiency priced in stock markets? A comparison between the U.S. and Chinese cases

Yang, Baochen and Xue, Fangzhan and Su, Yunpeng and Yan, Cheng (2019) 'Is informational inefficiency priced in stock markets? A comparison between the U.S. and Chinese cases.' Pacific-Basin Finance Journal. ISSN 0927-538X

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Abstract

Using a sample of U.S. and Chinese stocks between July 1999 and June 2016, we investigate the pricing role of informational inefficiency in stock markets. We find that the relations between returns and the informational inefficiency factor statistically change from significantly positive, to insignificant, and further to significantly negative as informational efficiency increases. This finding provides new insights into the common belief that emerging markets are less efficient than developed markets. We propose new factor models for less efficient markets. Our conclusions are robust to alternative ways of sorting portfolios, to various subsample analyses, and to alternative factor models.

Item Type: Article
Uncontrolled Keywords: Market efficiency; Entropy; Adaptive markets hypothesis
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 23 Apr 2019 15:44
Last Modified: 23 Apr 2019 16:15
URI: http://repository.essex.ac.uk/id/eprint/24492

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