• Selected
• Entire List

Abstract:
We investigate the empirical relationship between stock returns, return volatility and trading volume using data from the Brazilian stock market (Bovespa). Our sample contains stock return and trading volume data from a theoretical portfolio including stocks participating in the Bovespa Index (Ibovespa) extending from 01/03/2000 through 12/29/2005. The empirical methods used include cross-correlation analysis, unit-root tests, bivariate simultaneous equations regression analysis, GARCH modeling, VAR modeling, and Granger causality tests. We find support for a contemporaneous as well as dynamic relationship between stock returns and trading volume, implying that forecasts of one of these variables can be only slightly improved by knowledge of the other. On the other hand, our results indicate that there is a contemporaneous and dynamic relationship between return volatility and trading volume. Additionally, by applying Granger's test for causality, we find that return volatility contains information about upcoming trading volume and vice versa.

Stock returns, Return Volatility, Trading Volume, GARCH, Granger causality

Abstract:
The paper reports empirical evidence on the relationship between Economic Value Added (EVA) and stock returns in Brazilian firms. This relationship has been subject to controversy in recent years, with some authors finding significant ties between those variables while others finding none. The hypothesis that EVA affects stock returns is tested through regression analysis using alternative models. The sample comprises companies traded in the main Brazilian stock exchange. A comparison of outcomes of previous studies with ours shows that significant results depend on finding the appropriate variables (stock prices versus stock returns) and the correct dynamics linking the dependent and the explanatory variable.

EVA, Economic Value Added, stock returns, Brazilian firms, empirical evidence

Abstract:
The paper reports the result of empirical tests on the validity of Fleuriet's model, also known in Brazil as Advanced or Dynamic Working Capital Analysis. According to some authors, the model, which was introduced in Brazil in the 80's, brought important innovations to working capital analysis and management. One of the model's fundamental but untested assumptions is that current financial assets and liabilities are erratic variables uncorrelated to the firms' operations, unlike cyclical or operating current assets, which are directly correlated to the firm's operations. With the use of statistical and econometric methods involving correlation analysis, and cross-section and panel-data regressions, and using a sample of 80 Brazilian firms listed on the Brazilian stock exchange, we show that this assumption must be rejected, since the results make clear that those supposedly erratic variables are in fact strongly correlated to the firms' operating levels. The conclusion is that Fleuriet's model is empirically inconsistent and its validity must be questioned.

Fleuriet's model, working capital management, empirical tests, Brazilian firms

Abstract:
Empirical studies evaluating the impact of accounting information on the stock market have acquired great importance in the accounting literature and have become an instrument to assess the relevance and usefulness of accountancy itself. Following this path, we investigate the impact of the degree of operating leverage on stock returns in the Brazilian market. Since there is a widely documented relationship between the degree of operating leverage and systematic risk, and between the latter and stock returns, it should be logical to infer an association between the degree of operating leverage and stock returns. We perform empirical tests using panel-data regressions with no effects, fixed effects and random effects to test the hypothesis that the degree of operating leverage is one of the factors determining the systematic risk of stocks. Our sample includes data extending from 2001 to 2004 of firms listed on the Brazilian Stock Market (Bovespa). We find evidence of a positive and significant relationship between those two variables, as expected.

degree of operating leverage, stock returns, accounting information, Brazilian stock market

Abstract:
Recent studies have shown the existence of a relationship between the disclosure of accounting information and economic effects. The disclosure of value-relevant accounting information reduces the information asymmetry on the market and, consequently, the risk of investors making mistakes in their decisions, which fosters the attraction of foreign capital. This paper has the purpose of investigating if there is a cross-firm relationship between the disclosure of accounting information and the volatility of stock returns of Brazilian firms. The hypothesis tested is that firms with higher levels of disclosure present lower volatility of stock returns. The research design involves a sample including 40 stocks belonging to 30 firms listed on the Brazilian stock exchange (Bovespa) and an econometric model consisting of a cross-firm linear regression, as well as robustness tests. The empirical tests performed are robust and confirm the hypothesis raised a priori.

Brazil, stock market, stock returns, disclosure, accounting, volatility, econometric model

Abstract:
This paper reports the construction and testing of an econometric model designed to represent a firm's financial statements. More specifically, the paper aims at showing how a firm's financial statements can be empirically explained by means of a simultaneous equations structural model connecting macro and microeconomic (market) variables with accounting variables. We also present forecasts for the financial statements. The firm to which the model is applied is a monopoly in the Brazilian domestic market for petroleum products and the largest Brazilian firm in operation. The results obtained are consistent with the expectations associated to the structural model. Applications stemming from the study include financial analysis, forecasting and planning, as well as firm valuation.

econometric model, accounting, financial statements, Brazilian firm

Abstract:
This paper presents an analysis of the world iron and steel industry from 1950 to 1980. After presenting a technical overview describing the technological possesses in use during that period by the steel, the iron ore and the ferrous scrap industries, we describe and analyse, on economic grounds, the market structure and the market forces that shaped the iron and steel industry from the beginning of the 1950s to the end of the 1970s. After analysing the market structure of the iron ore and the steel industry, we argue that bilateral monopoly is an adequate framework to deal with the iron and steel market during that period, and that the steel industry has stronger market power to influence iron ore prices to its advantage.

iron and steel industry, iron ore, market structure, bilateral monopoly, terms of trade

Abstract:
The paper tests if the theory known as Pecking Order Theory provides empirical explanation for the capital structure of Brazilian firms. According to this theory, the capital structures would result from a hierarchy of financial decisions where internally generated resources would have first priority, followed by debt issues and, as last resort only, by equity issues. In its strong form, the Pecking Order Theory sustains that equity issues would never occur, whereas in its weak form, limited amounts of issues are acceptable. The methodology adopted in this empirical study involves cross-section regressions and the testing of hypotheses stemming from the underlying theory in its strong and weak forms. The upshot leads to the conclusion that the tested theory, in its weak form, is applicable to Brazilian firms, but the same does not happen with its strong form. The results also show that the goodness of fit of the Brazilian regressions are significantly better than those reported for American firms and that Brazilian firms seem to be closer to the Pecking Order's strong form than the American ones. The sample involves 132 publicly listed firms and the accounting data refer to 2001.

capital structure, pecking order, empirical study, Brazilian firms

Abstract:
We test two models with the purpose of finding the best empirical explanation for the capital structure of Brazilian firms. The models tested were developed to represent the Static Tradeoff Theory and the Pecking Order Theory. The sample consists of firms listed in the Sao Paulo (Brazil) stock exchange from 1995 through 2002. By using panel data econometric methods, we aimed at establishing which of the two theories has the best explanatory power for Brazilian firms. The analysis of the outcomes led to the conclusion that the pecking order theory provides the best explanation for the capital structure of those firms.

Static tradeoff, pecking order, capital structure, Brazilian firms

Abstract:
The paper documents the specification and estimation of an econometric model of the Brazilian stock market (Bovespa) using a GARCH(1,1) model. We used quarterly data for an estimation period spanning from January 1995 to December 2003. The empirical results show that GDP growth, exchange-rate devaluations and international stock markets affect positively the Brazilian stock market, whereas the domestic real interest rate and country risk have a negative impact on the country's stock market performance.

stock market, emerging market, Brazil, Bovespa, econometric model, GARCH

Abstract:
We seek for verification and explanation of arbitrage between securities of dual-listed Brazilian-based companies which are simultaneously traded on the Brazilian and the US stock markets. Following the extant literature, our underlying hypothesis is that arbitrage events can be explained by shocks occurring on the Brazilian and the US stock markets, as well as on the R$/US$ exchange rate. We also aimed at determining factors that act as barriers to arbitrage, hampering arbitrageurs' activity. For this purpose, we test as potential barriers: synchronicity, illiquidity, relative turnover, market capitalization, and trading costs. The methodology involves the use of time-series and cross-section linear regressions using daily data from 1995 through 2004. We confirm that during that period arbitrage events occurred in 32 of 34 stock/ADR pairs included in the sample. Therefore, we come to the conclusion that the Brazilian and the US stock markets are segmented rather than integrated. We also found that synchronicity is the only of the tested factors that act as a significant barrier to arbitrage between Brazilian stocks and their corresponding ADRs.

Dual-listed stocks, stock markets, arbitrage, ADR, barriers, Brazilian stock market, U.S. stock market, Bovespa, NYSE

Abstract:
This paper has the purpose of surveying and critically analyzing the effects of accounting procedures which are closely related to groups of companies operating multinationally. These are the methods for translation of financial statements, e.g. the Temporal and the Closing-rate Methods, as far as those methods are embodied in accounting standards which have been either recommended or adopted by countries such as the UK and US. We conclude that with regard to changing prices, General Price Level Accounting is the best option. As for exchange rate fluctuations, the Closing Rate Method should be preferred over the Temporal Method, the order being owed to the greater relative importance of foreign operations which are carried out in an independent way, vis-a-vis those which are mere extensions of the parent company's. Costs may also have played a part towards the choice. However, the main conclusion that can be drawn is that convenience of use, for both the accounting profession and report users, seems to have been the determinant factor.

Financial statements, exchange rate, changing prices, accounting standards

Abstract:
We address the question of whether the quality of corporate values contribute significantly to improve the stock performance of banks listed on emerging stock markets in six Latin-American countries (Argentina, Brazil, Chile, Colombia, Peru and Mexico). The corporate values analyzed are ethics, corporate governance, social responsibility, sustainability, and transparency. Stock performance is evaluated considering stock volatility, liquidity, and abnormal stock returns. The research design involves linear cross-section multiple regressions where the dependent variable is stock performance and the explanatory variables are corporate values, together with a set of control variables. We show that corporate values as a single average index show a negative relationship with stock return volatility, as expected. Individually, ethics, social responsibility, sustainability and transparency also show negative relationships with stock volatility, whereas corporate governance does not. We also find that ethics reduces liquidity and that there is no significant relationship between the corporate values studied and stock abnormal returns.

corporate values, ethics, corporate governance, social responsibility, sustainability, transparency, Latin America, banks, volatility, liquidity, abnormal returns, stock market

Abstract:
The paper makes use of an event study to test the Efficient Market Hypothesis and its variant, the Uncertain Information Hypothesis, for the Brazilian stock market. Previous literature has associated inefficiencies generated by thin markets with investor overreaction or underreaction, thereby refuting the Efficient Market Hypothesis. However, the arrival of new information introduces a period of increased risk and uncertainty to the rational agents. The Uncertain Information Hypothesis was devised to be a more realistic variation of the efficiency theory, since it accounts for investor reactions to unexpected surprises. The evidence found here indicates that neither the Efficient Market nor the Uncertain Information Hypotheses are supported by the Brazilian data. Actually, we found evidence that the Brazilian stock market overreacts to positive shocks and underreacts to negative shocks, which suggests the prevalence of institutional inefficiency.

Stock Market, Brazil, Efficient Market, Uncertain Information, Overreaction, Underreaction, event study

Abstract:
Conventional cost accounting assumes that the relation between cost and volume is symmetric for volume increases and decreases. We test an alternative model where costs increase more when activity rises than they decrease when activity falls by an equivalent amount. We find, for a sample of Brazilian firms that selling, general, and administrative costs increase 0.59% per 1% increase in sales but decrease only 0.32% per 1% decrease in sales. We test several hypotheses about the properties of sticky costs and how the stickiness of SG&A costs changes with firm circumstances and we confirm cost stickiness for Brazilian firms.

Cost accounting, sticky costs, Brazilian firms, panel data

Abstract:
Previous studies have shown that linear models are incapable of capturing business cycle dynamics with accuracy. This has brought interest in non-linear models such as the Markov switching (MS) regime technique, which can distinguish business cycle recession and expansion phases, and is sufficiently flexible to allow different relationships to apply over these phases. This technique can be used to simultaneously estimate the data generating process of real GDP growth and classify each observation into one of two regimes (i.e. low-growth and high-growth regimes). In this study, we investigate the dynamics of the Brazilian business cycle using a Markov regime switching vector autoregressive model (MS-VAR). The study was developed using time-variable transition probabilities (TVTP) and for comparison and validation, fixed transition probabilities (FTP) between regimes. In order to capture cyclical fluctuations of the Brazilian GDP, we use the yield spread as a leading indicator. Most of the results obtained with the MS-VAR-TVTP are according to the expected. We show that the model is adequate to predict short-term cyclical fluctuations in the Brazilian economy. We also estimate an MS-VAR model with FTP in order to validate the TVTP model. We confirm the relevance of the yield spread in the estimation of the model parameters and the transition probabilities.

Markov switching regime model, VAR, time-varying transition probabilities, business cycle, Brazil

Abstract:
This paper details efforts at developing and estimating a Vector Autoregressive (VAR) econometric model representative of the financial statements of a firm. Although the model can be generalized to represent the financial statements of any firm, this work was carried out as a case study, where the chosen company is the largest firm in Brazil: Petrobras S/A. The methodology utilized makes use of correlation analysis, unit root tests, cointegration analysis, VAR modeling, Granger causality tests, in addition to impulse response and variance decomposition methods. Besides the endogenous financial statement variables, an exogenous variable vector was utilized, namely, Brazilian GDP, domestic and foreign interest rates, the international oil price, the exchange rate, and the country risk. The final version of the model is a Vector Error Correction Model (VECM), which takes into account the cointegrating relationships among the endogenous variables. After estimation and validation, the model is used to produce forecasts of the financial statements of the firm under study. Estimates for the exogenous variables and dividend forecasts were also used to estimate the firm's market value. The results are apparently robust and the authors expect they might contribute to the field of financial planning and forecasting.

econometric modeling, financial statements, VAR Model, financial forecasting, Petrobras

Abstract:
We perform an event study to investigate stock returns associated to the announcement of equity issues by Brazilian firms between 1992 and 2003 aiming to determine the market reaction before, during, and after the issue announcement. After measuring abnormal returns by OLS, we used ARCH and GARCH models over 70% of the sample. The results show signs of insider information, negative abnormal returns around the announcement, and persistent negative abnormal returns in the long-term after the issue. The results are consistent with the extant empirical literature and show that ARCH/GARCH estimation of abnormal returns is superior to OLS estimation.

Market reaction, event study, Brazilian stock market, GARCH

Abstract:
We analyze the role of institutional investors as providers of long-term capital resources in the Brazilian capital market. Since there is virtually only one provider of long-term financing in Brazil, BNDES - the National Bank for Economic and Social Development, and the fact that the domestic stock market is relatively small, Brazilian-based firms find themselves in dire straits when they need to raise capital. Since institutional investors are, in general, keener to invest on a longer-term basis than individual or speculative investors, they play a crucial role in the development of the country's private sector. However, we point out three major caveats hampering the institutional investor's role as suppliers of capital to the private sector: a) the extant regulatory restrictions on institutional investors' portfolios, which according to some empirical evidence leads to portfolios that might be situated off their efficient frontiers; b) the crowding-out effect put forth by government bonds against private securities (stocks and bonds), which inhibits the domestic private capital market; c) the political influence, including corruption, wielded by government-related political parties or politicians on pension funds of state-owned firms or public agencies, which leads to spurious economic decisions. Although institutional investor's assets have grown remarkably during the recent past, it is unlikely that the country will be able to tackle these problems in the foreseeable future.

Brazil, Institutional Investors, Political Influence, Crowding Out, Regulatory Restrictions, Capital Market

Abstract:
The paper's purpose is to determine empirically factors that influence Brazilian firms in their decision to cross-border list their stock. The methodology adopted involves an economic analysis of Brazilian cross-listed firms, characterizing and differentiating them from non cross-listed firms, univariate and multivariate tests, using the logit model and a sample of 288 firms listed on Brazilian stock exchanges. The economic analysis shows that cross-listed firms invest substantially, and are profitable, dynamic, and highly valued on the domestic market. The results of the hypotheses tests indicate that size, stock market share, exposure on foreign markets, and best practices of corporate governance seem to be factors influencing Brazilian firms to cross list. Firms belonging to the Telecommunications industry sector seem to have a higher probability to cross-list. The relevance of the study is in improving the knowledge on the behavior of Brazilian firms in international capital markets.

Brazilian firms, cross-border list, cross-list, stock markets, logit model

Abstract:
Previous studies have shown that financial accounting information produce economic effects, as a result of its role in reducing information asymmetry in capital markets. Recent theories sustain that the level of value-relevance of a country's accounting information is directly related to international capital mobility. This would entail that countries with higher disclosure of value-relevant accounting information and where financial accounting is less aligned with tax accounting would show higher potential for attracting international capital flows. The extant literature provides evidence on the impact of financial disclosure environments on international capital mobility. However, to our knowledge, there are no such studies including Latin-American countries. We aimed at filling this void by assessing the influence of accounting information on international capital mobility in a twenty two-country sample, including the three largest Latin-American countries: Argentina, Brazil, and Mexico. The countries included in the sample represent around 80% of the world's GDP from 1995 to 2001. Our empirical results show with a 99% confidence level that the degree of disclosure of value-relevant accounting information has positively influenced international capital mobility. We also show with a 95% confidence level that countries where financial accounting is less aligned with tax accounting present higher international capital mobility. The three Latin-American countries studied present relatively low levels of disclosure among the sampled countries. However, whereas Argentina and Brazil show low levels of capital mobility, Mexico stands out with a high capital mobility, which we reckon it could be explained by the country's trade and investment connections with the US and by its participation in the NAFTA.

international capital mobility, financial accounting disclosure, international CAPM, Consumption, direct foreign investment

Abstract:
Based on the median voter theorem, we propose an econometric model for estimating local demand for public education. We test the hypothesis that public expenditures associated to this sector are induced by the presence of certain factors of social, economic, geographic, and demographic nature. We estimate a parameter of congestion in order to identify the degree of publicness of local public education. We review the literature searching for empirical evidence on the role of these factors in the composition of expenditures. Based on a cross-section sample with 5,087 Brazilian municipalities and using multiple regression analysis, we find that income, price, population scale and age distribution, among other variables, are significant factors explaining local public education. Based on the congestion parameter estimated for this good, we suggest that there still are economies of scale to be explored in the Brazilian municipalities, which confirms the rationality of local public supply.

public goods, education, municipality, Brazil, budget

Abstract:
The paper presents results of empirical tests with hybrid nominal exchange rate models for the Brazilian foreign exchange market, using macroeconomic and market microstructure variables. The basic model was originally proposed and tested in the German (DM/US$) and the Japanese (Y/US$) foreign exchange markets by Evans and Lyons (2002). We applied the model to the Brazilian foreign exchange market (R$/US$) and obtained significant and correctly signaled coefficients, but the regressions showed low R2s, suggesting the omission of relevant variable(s). The inclusion of an additional variable representing a country-risk premium results significant and increases R2. Estimation by GARCH further improves previous results obtained by OLS. The upshot indicates that the route proposed by Evans and Lyons is a promising explanation for the R$/US$ exchange rate, but it seems the model specification needs further improvement.

Exchange rate, market microstructure, country risk, order flow, Brazil

Abstract:
This article examines the existence of lead-lag effects between the U.S. stock market, represented by NYSE and the Brazilian stock market, represented by Bovespa, i.e., whether upward and downward price movements in the NYSE are followed, on average, by similar movements in Bovespa, which would enable predicting stock prices in the Brazilian market, thus providing arbitrage opportunities. The existence of this effect would indicate a relative segmentation between these two markets, which would violate the efficient market hypothesis, whereby stock prices are unpredictable. Cointegration between the two markets was identified as well as the existence of bi-directional causality (Granger test). The results obtained from VECM, TSLS and GARCH regressions showed that the two markets are segmented and that returns of the Bovespa Index (Ibovespa) are to a large extent explained by the stock price movements in the Dow Jones Index some minutes beforehand. However, the results also show that the practice of arbitrage based on the lead-lag effects is not economically feasible due to transaction costs.

Abstract:
The development of the Brazilian stock market has raised concerns about the practice of insider information, with several cases being documented in recent years. We hypothesize that insider trading is a form of corruption. As such, the higher the corruption level in a country, the more intense insider trading practices in that country are likely to be. Brazil is in an intermediate zone of corruption, and there is a widespread feeling that the authorities do not fight insider trading efficiently enough and that the market tolerates it. Some authors argue that corruption is inversely related to education and that the struggle against corruption requires the control of public administrators, which can be exerted through voting, controlling congress, and bureaucratic procedures. There is a anthropological view in which corruption arises from an extension of the public to the private sphere as a result of cultural patterns that approximate the individual to the person. Corruption derives from existing personal relationships of the members of the State bureaucracy, implying illicit gains using public resources. In this paper, we survey the Brazilian legislation related to insider trading and present a review on empirical studies on the subject. We conclude that although an institutional framework exists in Brazil to fight insider-trading practices in the stock market, the actual success and willingness of the authorities with respect to this form of corruption is inefficient. One of the reasons for this is a long tradition of corruption culture. One cannot deny the efforts applied by CVM, Bovespa, and legislators towards increased transparency and ethical behavior, but the actual enforcement of the law against insider trading seems to require a much greater effort.

insider trading, stock market, Brazil, corruption, regulation