Where have the profits gone? Market efficiency and the disappearing equity anomalies in country and industry returns✰

Abstract

We are the first to demonstrate the decline in the cross-sectional predictability of country and industry returns in recent years. We examine 53 anomalies in country and industry indices from 64 markets for the years 1973–2018. The profitability of the strategies has significantly decreased recently driven particularly by the disappearance of value and reversal effects. The phenomenon is strongest in large developed markets. Neither changes in country- and industry-specific risks nor investor learning from the academic literature can explain the effect. Our findings support the view that the fall in return predictability is caused by the overall improvement in market efficiency. © 2020 Elsevier B.V. All rights reserved.