Limits to arbitrage and the MAX anomaly in advanced emerging markets

Mostafa Seif, Paul Docherty, Abul Shamsuddin

Research output: Contribution to journalArticleResearchpeer-review

7 Citations (Scopus)

Abstract

Evidence of a negative relationship between extreme positive returns and future returns has been reported in developed markets (Bali, Cakici, & Whitelaw, 2011; Zhong & Gray, 2016). This study examines this “MAX anomaly” across advanced emerging markets, which are characterised by a higher level of limits to arbitrage compared with developed markets, but lower financial frictions than their secondary emerging counterparts. The MAX anomaly is shown to be larger in magnitude in advanced emerging markets compared with developed markets. Our results support the proposition that the MAX anomaly is a pervasive anomaly that is related to mispricing.

Original languageEnglish
Pages (from-to)95-109
Number of pages15
JournalEmerging Markets Review
Volume36
DOIs
Publication statusPublished - Sep 2018

Keywords

  • Emerging markets
  • Limits of arbitrage
  • MAX anomaly
  • Mispricing

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