Brazilian stock market bubble in the 2010s

Abstract

Brazilian stock markets underwent a period of remarkable exuberance between early 2016 and March 2020, only to crash with the global turmoil related to health worries and oil prices. The Ibovespa index tripled its market value between a low point in January 2016 and its maximum in January 2020—by March 12, half those gains had been erased. Narratives about a bubble in Brazilian stocks before the global crash and its subsequent burst are plentiful in specialized media. In this paper, we explore this narrative from within the framework of strict local martingale financial bubbles. A key result in this literature states some financial asset price displays a bubble only if it follows a strict local martingale under the equivalent risk-neutral measure. A diffusion process is a strict local martingale if its volatility increases faster than linearly as its level grows. We first apply a nonparametric method to estimate the volatility function of Ibovespa daily prices, then fit a stochastic volatility model whose parameter values can discriminate the underlying price process as either a true martingale or a strict local martingale. Our results are negative towards the presence of a strict local martingale bubble in the Ibovespa index. Strict local martingale bubbles are related to a positive relationship between returns and volatility which does not seem present in the data at hand. We also performed a comparative analysis of the patterns found for the Ibovespa with the S&P500 index, spot Brent oil and gold prices. Electronic supplementary material The online version of this article (10.1007/s43546-020-00005-w) contains supplementary material, which is available to authorized users.

Asymmetric dependence of intraday frequency components in the Brazilian stock market

“…In the analyzed period, it is needed to emphasize the expressive influence of COVID-2019 in the worldwide financial markets. According to Laurini and Chaim ( 2020 ), the COVID-19 pandemic drop in prices in March 2020 has spurred volatility increases with levels faster. Along with the phenomenon, the Brazilian stock market has been suffering an impact on internal political instability.…”

The Impact of COVID‐19 Crisis on Stock Markets’ Statistical Complexity

“…is last result is consistent with other findings from the literature. For instance, Laurini and Chaim [41] show that Brazilian stock markets went through a period of "exuberance" between early 2016 and March 2020, only to crash with the global turmoil caused by health concerns and oil prices. David et al [42] point toward a strong impact of the pandemic crisis on the IBOVESPA and reveal its poor recovery when compared to other indexes; whereas the findings of Chong et al [43] suggest that the Brazilian market is significantly influenced by the conditions of other markets, such as the Chinese one.…”