Investors often speak of rotating in and out of different global markets to capture higher returns. Large market swings or volatility, sometimes a source of “abnormal” returns or alpha, can rear its head in ways that prove fleeting. Recently published, co-authored research by Associate Professor of Finance and Corrigan Research Professor Feng Zhang shows that long-run global stock market returns are not so “abnormal” or after all. The volatility in South Korea’s market, owing to the AI trade in the summer of 2026, is an example of lessons addressed in the novel research.
The study looks at long-run stock market returns after corporate events that typically move markets. Building off earlier work from 2019, a state-of-the-art benchmark is applied to the U.S. market. Here, they apply it to global markets. “We thought that many focus on the U.S. market, but every market is different, especially developing markets, which are more segmented and probably behave differently than the US market,” Zhang says about the incentive for the study.
Massive global study
Zhang and his co-authors reviewed 75 existing studies covering roughly 164,000 corporate events across 58 countries. This body of global research has long-produced mixed conclusions about how stocks perform in the months and years after corporate events like IPOs, share repurchases, and M&A. Unlike most literature in this corporate events space, which focuses on short-run returns, like days and months, Zhang studies long-run returns, an under-explored area on a global basis.
“Our takeaway is that the so-called ‘abnormal returns’ don’t actually exist in the first place once you apply an appropriate benchmark,” Zhang offers. The market gives what it gives. Returns based on firm characteristics are an appropriate benchmark. This mirrors what Zhang and his coauthors found in the earlier 2019 study focused solely on the United States market — applying the benchmark. The global study holds broadly across developed and developing markets alike, not just the U.S.
Global stock markets tend to move together to some extent, with the U.S. market, as the most sophisticated and most liquid market, often leading other markets. But still, the whole global market is kind of disconnected. Why? “Many countries have restrictions on market access,” Zhang says. This is true for many markets, which academics call “segmented markets.” He notes, “I’d say the whole global market is still highly disconnected to some extent.”
Benchmarks matter
A notable insight in the paper is that comparing a stock to peers within its own country works better than comparing it to a regional or global benchmark. When asked about how connected global markets really are, Zhang notes, “Global markets are only partially connected — capital controls, restrictions on foreign investment, and general market segmentation mean arbitrage opportunities don't get arbitraged away as efficiently across borders.” Because the relationship between firm characteristics and returns differs by country, applying a benchmark built in one market (like the U.S.) to another, produces weaker, less accurate results. Adjusting for firm characteristics within a stock's own-market context explains far more of the variation in post-event returns.
Zhang highlighted two related patterns from the global data. First, countries with stronger financial institutions tend to show more muted market reactions to corporate events — a sign of greater efficiency. Second, greater post-event abnormal returns show up in smaller, more volatile, and more segmented markets, where information tends to be more fragmented and market access is more restricted. Zhang offers, “Market integration enhances market efficiency, which helps us understand how to advance financial markets globally.”
Zhang describes the US market as comparatively efficient — thanks to stronger regulation, broad global investor access and a deep base of sophisticated participants including hedge funds. “However, the U.S. isn't perfectly efficient either,” he pointed to the recent volatility in AI- and semiconductor-linked stocks, including the SpaceX IPO. “Initially, shares priced at $135 spiked above $225 within days, before settling back near $110 a month-plus later— evidence that U.S. investors can get swept up in optimism.”
Practical takeaways
Institutions, good corporate governance and liquidity are hallmarks of a well-performing, efficient stock market. For corporate managers, Zhang suggests focusing on controllable factors: since managers can't dictate regulation, they can still improve their own stock's pricing efficiency by disclosing information accurately and on time.
For investors, his message is to stay disciplined and rational rather than speculative. He observes that the South Korean stock market offers a textbook example. When markets are more efficient, investors face better guidance and information environment overall. “Firms then get clearer signals about where capital should be deployed toward projects the market actually values,” Zhang relays. In turn, investors themselves are less likely to be experience excessive losses by irrational bets.
The implications of the research shed light on what makes a good global stock market tick and the solid returns investors seek.
The paper “Long‐run post‐event returns in global stock markets” by Feng Zhang of SMU Cox School of Business; Hendrik Bessembinder of Arizona State University; Michael Cooper of University of Utah; and Wei Jiao of Rutgers University, was published in Journal of International Business Studies.
Written by Jennifer Warren.
