Esta dissertação analisa a existência de oportunidades de obtenção de ganhos econômicos através da adoção de estratégias de investimento que explorem o viés de sobre-reação de preços no mercado de ações brasileiro no período de 1995 a 1998. De forma complementar, busca identificar se os resultados são persistentes a alterações do indicador de retorno utilizado, período de tempo da análise, método de acumulação de retornos e número de ativos da carteira. Os indicadores de retorno utilizados foram: retorno total, excesso de retorno de mercado e retorno ajustado ao risco, para períodos mensais, trimestrais, semestrais, anuais e bianuais. Utilizou-se a acumulação aritmética e composta, bem como diferentes quantidades de ações (fixas de 5 e 10 ações e variável de 5% e 10% da carteira total). Os instrumentos utilizados para os testes estatísticos de associação foram o teste de diferença de médias para duas amostras independentes, o teste de proporções, além do coeficiente de correlação de Spearman. A amostra compreendeu todas as ações existentes no período, cujos dados estavam disponíveis no banco de dados Economática. Os resultados demonstraram que existe a oportunidade de se obter ganhos no curto prazo, pois a estratégia contrária de investimento apresentou ganhos estatisticamente significantes para os períodos mensal e trimestral. / This dissertation analyzes the possibility of obtaining gains by adopting contrarian investments policy in the Brazilian Stock Market during the period from 1995 to 2003, in order to prove the existence of the overreaction bias in the investors? behavior. As a complementary objective, it was explored whether the strategy performance depends upon the measure employed to address performance, time period, cumulating returns method or number of securities in the portfolios. The research has involved different measures of performance: total return, market excess return and risk-adjusted return for different time horizons: monthly, quarterly, semi-annually, annually and biannually. It was computed two methods for cumulating returns, arithmetic and buy-and-hold, and also various quantitites of securities in each portfolio. The statistical procedures used to measure the degree of association were: difference of sample means test, proportions test and Spearman?s correlation coefficients. The sample included all stocks listed in Bovespa, with available data in the Economática database. Results show that there is an opportunity to gain in the short-time horizon, once the contrarian investment strategy presented statistically significant gains for monthly and quarterly periods.

Esta dissertação analisa a existência de oportunidades de obtenção de ganhos econômicos através da adoção de estratégias de investimento que explorem o viés de sobre-reação de preços no mercado de ações brasileiro no período de 1995 a 1998. De forma complementar, busca identificar se os resultados são persistentes a alterações do indicador de retorno utilizado, período de tempo da análise, método de acumulação de retornos e número de ativos da carteira. Os indicadores de retorno utilizados foram: retorno total, excesso de retorno de mercado e retorno ajustado ao risco, para períodos mensais, trimestrais, semestrais, anuais e bianuais. Utilizou-se a acumulação aritmética e composta, bem como diferentes quantidades de ações (fixas de 5 e 10 ações e variável de 5% e 10% da carteira total). Os instrumentos utilizados para os testes estatísticos de associação foram o teste de diferença de médias para duas amostras independentes, o teste de proporções, além do coeficiente de correlação de Spearman. A amostra compreendeu todas as ações existentes no período, cujos dados estavam disponíveis no banco de dados Economática. Os resultados demonstraram que existe a oportunidade de se obter ganhos no curto prazo, pois a estratégia contrária de investimento apresentou ganhos estatisticamente significantes para os períodos mensal e trimestral. / This dissertation analyzes the possibility of obtaining gains by adopting contrarian investments policy in the Brazilian Stock Market during the period from 1995 to 2003, in order to prove the existence of the overreaction bias in the investors? behavior. As a complementary objective, it was explored whether the strategy performance depends upon the measure employed to address performance, time period, cumulating returns method or number of securities in the portfolios. The research has involved different measures of performance: total return, market excess return and risk-adjusted return for different time horizons: monthly, quarterly, semi-annually, annually and biannually. It was computed two methods for cumulating returns, arithmetic and buy-and-hold, and also various quantitites of securities in each portfolio. The statistical procedures used to measure the degree of association were: difference of sample means test, proportions test and Spearman?s correlation coefficients. The sample included all stocks listed in Bovespa, with available data in the Economática database. Results show that there is an opportunity to gain in the short-time horizon, once the contrarian investment strategy presented statistically significant gains for monthly and quarterly periods.

I examine the determinants of cross-sectional liquidity in the IPO aftermarket during the period of 1995 through 2005. I find that past price performance, the extent of stock visibility, the mass of informed agents, and certain IPO attributes play a role in explaining IPO trading activity. My empirical evidence shows that differences of opinion and estimation uncertainty about an IPO firm affect little IPO liquidity. My findings contribute to the understanding of determinants of IPO aftermarket trading. I also investigate whether contemporaneous overreaction tends to occur following persistent information in the options market. More specifically, I compare the reactions between growth and value investors, and small and large investors conditional on past price reactions. My empirical results suggest that value investors react more strongly than growth investors following a series of prior information shocks, as measured by the cumulative level of overreaction. Small investors tend to react more strongly than large investors conditional on prior information shock, as measured by the cumulative sign or level of overreaction. The results imply that overreaction is a function of investor types and previous information and contribute to the overreaction hypothesis in the options market.

The finding of reversals in weekly returns has been attributed to a combination of microstructure issues and overreaction to information. I provide new evidence eliminating overreaction as a source of reversal. I show that well-known weekly contrarian profits are followed by a long run of momentum profits. In fact, these profits are strong enough to produce a significant momentum effect over the full year following portfolio formation. Thus, the market does not appear to view extreme weekly returns as excessive, as implied by an overreaction story. To the contrary, this return continuation is consistent with underreaction to the news driving extreme weekly returns. This is supported by cross-sectional tests in which I find this week's news is positively related to next week's returns. The evidence presented here is consistent with growing evidence that underreaction to firm-specific information is a pervasive feature of price formation. Therefore, if any short-run contrarian profits can be realized, they are better viewed as compensation for providing liquidity than as a reward for arbitrage.

While some prior studies document that investors overreact to information in sales growth as consistent with representativeness bias, other studies find no evidence of investor overreaction to either sales or earnings growth. Other recent studies also show that sales growth does not predict stock returns after controlling for changes in outstanding shares and asset growth. I reexamine the role of representativeness by investigating whether the effects of this bias are confounded by the presence of another effect that has been extensively documented - investors' underreaction to fundamentals. Adjusting for investor under-reaction to fundamentals, I document strong evidence that investors overreact to sales growth as predicted under representativeness despite adding accruals, asset growth, and equity issuance as additional controls. In cross-sectional regressions of future stock returns on predictive variables that control for fundamentals, changes in equity shares, accruals, and lagged 36 month returns, I find that the coefficient on sales growth is highly significant over both the full sample period 1970-2009 (t-stat -3.12). Furthermore, asset growth, equity issuance, and accruals lose much of their significance in favor of sales growth. I also provide evidence that rejects a theory based on fixation in favor of representativeness. These results document evidence of overreaction to past sales growth in firms where underreaction to fundamentals does not confound the overreaction due to representativeness bias.

Using a sample of EREIT returns during the period 1993 to 2006 from the CRSP/Ziman REITs database, I construct portfolios of equity REITs based on past raw returns and evaluate their raw returns and risk-adjusted returns during the holding period for persistence. After adjusting for risk with Carhart (1997)’s 4-factor model, I find no evidence of persistence. By implication, a momentum strategy of buying historical winners and short-selling losers does not generate statistically significant abnormal returns. However, I do find strong evidence of performance reversal based on two-year and three-year ranking and holding periods. Consistent with DeBondt and Thaler (1985)’s overreaction theory, investors tend to overreact based on long-term rather than short-term performance records. This would suggest that investors tend to take a much longer period of time to formulate an opinion regarding a REIT’s performance record than previously assumed by earlier researchers. While there is a measurable tendency toward performance reversal, the return spread between the best performing EREITs and worst performing EREITs is marginal. This would indicate that the REIT markets are behaving in a generally efficient fashion. The investigation of the association of EREIT characteristics and performance persistence suggests a property type focus and geographic diversification strategy for EREITs. At the same time, EREITs with high leverage also tend to exhibit good performance persistently.

The finding of reversals in weekly returns has been attributed to a combination of microstructure issues and overreaction to information. I provide new evidence eliminating overreaction as a source of reversal. I show that well-known weekly contrarian profits are followed by a long run of momentum profits. In fact, these profits are strong enough to produce a significant momentum effect over the full year following portfolio formation. Thus, the market does not appear to view extreme weekly returns as excessive, as implied by an overreaction story. To the contrary, this return continuation is consistent with underreaction to the news driving extreme weekly returns. This is supported by cross-sectional tests in which I find this week's news is positively related to next week's returns. The evidence presented here is consistent with growing evidence that underreaction to firm-specific information is a pervasive feature of price formation. Therefore, if any short-run contrarian profits can be realized, they are better viewed as compensation for providing liquidity than as a reward for arbitrage.

Submitted by Fabio Sobreira Campos da Costa (fabio.sobreira@ufpe.br) on 2017-04-24T13:48:24Z No. of bitstreams: 2 license_rdf: 1232 bytes, checksum: 66e71c371cc565284e70f40736c94386 (MD5) Tese - Valéria Saturnino - Versão Final.pdf: 2311610 bytes, checksum: 50e78bde81f7f2bbf611974dc45a5847 (MD5) / Made available in DSpace on 2017-04-24T13:48:24Z (GMT). No. of bitstreams: 2 license_rdf: 1232 bytes, checksum: 66e71c371cc565284e70f40736c94386 (MD5) Tese - Valéria Saturnino - Versão Final.pdf: 2311610 bytes, checksum: 50e78bde81f7f2bbf611974dc45a5847 (MD5) Previous issue date: 2016-12-09 / Esta tese teve por objetivo desenvolver uma nova sistemática de otimização de portfólios a partir da premissa da existência de desvios comportamentais dos investidores no mercado brasileiro. Para tanto, realizou-se uma ampla pesquisa bibliográfica buscando verificar a ocorrência destes desvios no Brasil e no mundo. Em seguida, foi desenvolvida a metodologia de pesquisa, a qual está dividida na execução de testes para avaliar as três hipóteses previstas, quais sejam: (1) de que ocorre o Overreaction no mercado de capitais brasileiro; (2) de que retornos anormais podem ser explicados tanto por variáveis fundamentalistas como comportamentais; e (3) de que é possível criar uma sistemática de otimização de carteiras que considere tanto os aspectos fundamentalistas como os comportamentais na decisão acerca do rebalanceamento dos pesos. O primeiro resultado obtido foi que não se pode rejeitar a ocorrência do Overreaction no Brasil no longo prazo. Além disso, os retornos das carteiras foram por um lado adequadamente explicados pelas variáveis do modelo de cinco fatores de Fama e French (2015), e por outro pela regressão do CSAD, a qual caracteriza os desvios de comportamento dos investidores. Sendo assim, foi criada a carteira recomendada e, juntamente com as carteiras perdedoras e vencedoras, foram analisados os retornos nos 20 trimestres seguintes, utilizando cinco métodos de otimização diferentes. Os resultados obtidos permitiram concluir que a sistemática proposta de monitoramento funciona melhor nas carteiras vencedoras, mas as carteiras de melhor desempenho no Brasil são aquelas baseadas em análises fundamentalistas, corroborando com a previsão de eficiência do mercado de capitais brasileiro. / This thesis aimed to develop a new systematic optimization of portfolios based on the premise of the existence of behavioral deviations of investors in the Brazilian market. For that, an extensive bibliographical research was carried out to verify the occurrence of these deviations in Brazil and in the world. Next, the research methodology was developed, which is divided into the execution of tests to evaluate the three predicted hypotheses, namely: (1) that Overreaction occurs in the Brazilian capital market; (2) that abnormal returns can be explained by both fundamentalist and behavioral variables; And (3) that it is possible to create a portfolio optimization system that considers both fundamentalist and behavioral aspects in the decision on rebalancing weights. The first result was that the overreaction in Brazil can not be rejected in the long run. Moreover, portfolio returns were on the one hand adequately explained by the variables of the five-factor model of Fama and French (2015), and on the other, by the regression of the CSAD, which characterizes the behavioral deviations of the investors. Thus, the recommended portfolio was created and, together with the losing and winning portfolios, the returns for the next 20 quarters were analyzed using five different optimization methods. The results obtained allowed us to conclude that the systematic monitoring proposal works best in the winning portfolios, but the best performance portfolios in Brazil are those based on fundamentalist analyzes, corroborating with the prediction of efficiency of Brazilian capital market.

Essay 1 Abstract Prior research indicates that equity markets assign a higher valuation to firms that sustain a string of earnings increases (earnings string) and a string of meeting or beating analysts’ earnings expectations (MBE string). However, to date, there is little evidence on the response of debt investors when firms sustain a long string of meeting/beating earnings benchmarks. This study fills the gap in the literature by analyzing the impact of sustaining an earnings string/MBE string on the cost of debt. I find evidence of a positive (negative) association between the length of the earnings string/MBE string and the bond yield spreads (credit ratings). These results suggest that debt holders assess a higher risk to firms that sustain a string of earnings benchmarks and require a higher risk premium, contrary to equity holders, who reward firms that sustain a string of earnings benchmarks. Additional analyses indicate that this discrepancy is attributable to the different investor compositions between debt and equity markets. Essay 2 Abstract This study extends the existing literature by investigating the impact of sustaining a string of earnings increases (earnings string) on stock returns using the time-series asset pricing approach. Using both Fama-French (1993) three-factor and Carhart (1997) four-factor models, I find that the average abnormal return of a zero investment arbitrage portfolio that longs the highest earnings string portfolio and shorts the lowest earnings string portfolio is approximately negative 65 (75) basis points per month. These results provide further insight into the existing literature by demonstrating that earnings string firms initially experience higher stock returns. However, as earnings strings become longer, the market reaction becomes weaker.

This paper investigates whether the Dogs of the Dow (or “Dow Dogs”) investment strategy is applicable to the Swedish stock market during the period 1996-2015. The strategy uses dividend yield as a way to identify undervalued stocks. Likely explanations to the strategy’s performance are contrasted between the Overreaction Hypothesis from the field of behavioral finance and the Efficient Market Hypothesis (EMH) from financial economics. The paper follows the original method formed by John Slatter, but is however extended by adding adjustments for risk, transaction costs and taxes to reflect a more realistic market setting. Our empirical findings suggest that the Dow Dogs strategy barely beats the market by 0.02 Sharpe ratio unit points. The strategy’s performance may be rather unimpressive, but it is interesting to acknowledge that the portfolio performed best during the market’s worst downturns. To conclude, our results lack statistical significance and we cannot reject the null hypothesis of no abnormal returns.