An analysis of the extent and causes of global momentum and value anomalies

This thesis undertakes detailed analysis to determine drivers for the global momentum and value anomalies. The objectives of this thesis are: first, to examine the effectiveness of Asness et al.’s (2013) model to explain international momentum and value profits; second, to investigate the role of cross-cultural attention on investor overconfidence and global momentum profits; and third, to study the impact of overconfidence on global value profits.
We provide the first investigation into the explanatory power of Asness et al.’s (2013) model for momentum and value in a comprehensive range of markets characterised by different cultures, geographical regions and levels of market development, finding unique and challenging evidence against the model’s effectiveness. Our evidence suggests that market development explains the weaker explanatory power of their model in our stock universe, implying market inefficiency. Motivated by the notion of market inefficiency, we are the first to examine the impact of cross-cultural attention on global momentum profits by considering market states and market dynamics. We find supporting evidence for the relevance of cross-cultural attention to global overconfidence and momentum profits, showing that momentum returns in individualistic countries are not higher than in collectivistic countries under all market dynamics, while relationships between individualism and momentum returns vary across market states. Extending the importance of overconfidence, we undertake an unprecedented investigation into its impact on global value profits over short and long-run periods by employing individualism and market states as proxies for overconfidence. Results demonstrate lower value profits following UP states than DOWN states and in individualistic countries than collectivistic countries over the short run. While long-run results do not support our hypotheses, possibly owing to the difficulty of defining long run, short-run results provide clear support for the view that investor overconfidence significantly impacts on reversals and value profits.