Market Development, Information Diffusion and the Global Anomaly Puzzle

Cai, Charlie X.; Keasey, Kevin; Li, Peng; Zhang, Qi

Abstract

Previous literature finds 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 fundamentals, initial mispricing and subsequent correction will not occur. The concentration of emerging countries in low efficiency regimes provides an explanation to the puzzle.

Citation

Cai, C. X., Keasey, K., Li, P., & Zhang, Q. (2023). Market Development, Information Diffusion and the Global Anomaly Puzzle. Journal of Financial and Quantitative Analysis, 58(1), 104-147. https://doi.org/10.1017/s0022109022000643

• Journal Article Type: Article
• Acceptance Date: Feb 4, 2021
• Online Publication Date: Jul 11, 2022
• Publication Date: 2023-02
• Deposit Date: Feb 15, 2021
• Publicly Available Date: Feb 22, 2021
• Journal: Journal of Financial and Quantitative Analysis
• Print ISSN: 0022-1090
• Electronic ISSN: 1756-6916
• Publisher: Cambridge University Press
• Peer Reviewed: Peer Reviewed
• Volume: 58
• Issue: 1
• Pages: 104-147
• DOI: https://doi.org/10.1017/s0022109022000643
• Public URL: https://durham-repository.worktribe.com/output/1252513