Abstract:The market price-earnings ratios differ from those of each share. Despite allowing for several pertinent analyses, authors have rarely addressed these valuation ratios in the Brazilian context. We can use it to evaluate whether the stock market is overvalued (undervalued). In this article, we analyze the mean reversion in a price-earnings ratio based on Ibovespa and identify periods of overvaluation (undervaluation) in the Brazilian stock market. We considered the period from December 2004 to June 2018. Until … Show more
“…The firms’ selection criterion was based on year-wise price earnings ratios (PER); a firm with a PER lower than the sample median value was selected in the sample. The underlying idea is that the stock below the median PER is undervalued and signifies potential for higher returns [ 21 , 22 ]. The choice of pairs was made through Johansen cointegration, which is the most effective way to identify stocks that move together [ 15 ].…”
The perception in pair trading is to recognize that when two stocks move together, their prices will converge to a mean value in the future. However, finding the mean-reverted point at which the value of the pair will converge as well as the optimal boundaries of the trade is not easy, as uncertainty and model misspecifications may lead to losses. To cater to these problems, this study employed a novel entropic approach that utilizes entropy as a penalty function for the misspecification of the model. The use of entropy as a measure of risk in pair trading is a nascent idea, and this study utilized daily data for 64 companies listed on the PSX for the years 2017, 2018, and 2019 to compute their returns based on the entropic approach. The returns to these stocks were then evaluated and compared with the buy and hold strategy. The results show positive and significant returns from pair trading using an entropic approach. The entropic approach seems to have an edge to buy and hold, distance-based, and machine learning approaches in the context of the Pakistani market.
“…The firms’ selection criterion was based on year-wise price earnings ratios (PER); a firm with a PER lower than the sample median value was selected in the sample. The underlying idea is that the stock below the median PER is undervalued and signifies potential for higher returns [ 21 , 22 ]. The choice of pairs was made through Johansen cointegration, which is the most effective way to identify stocks that move together [ 15 ].…”
The perception in pair trading is to recognize that when two stocks move together, their prices will converge to a mean value in the future. However, finding the mean-reverted point at which the value of the pair will converge as well as the optimal boundaries of the trade is not easy, as uncertainty and model misspecifications may lead to losses. To cater to these problems, this study employed a novel entropic approach that utilizes entropy as a penalty function for the misspecification of the model. The use of entropy as a measure of risk in pair trading is a nascent idea, and this study utilized daily data for 64 companies listed on the PSX for the years 2017, 2018, and 2019 to compute their returns based on the entropic approach. The returns to these stocks were then evaluated and compared with the buy and hold strategy. The results show positive and significant returns from pair trading using an entropic approach. The entropic approach seems to have an edge to buy and hold, distance-based, and machine learning approaches in the context of the Pakistani market.
“…Finally, the Ibov regressor provides an important finding for the literature, showing that online events with the participation of companies not belonging to the main reference portfolio of the Brazilian capital market, the Ibovespa, are more likely to provide statistically relevant abnormal returns than events with the participation of companies belonging to the index. Under the idea of efficient markets, the disclosure literature assumes that information, once disclosed, will be readily available to all investors, but this premise is not necessarily true and prevalent in all markets, especially in Brazil, according to the evidence pointed out by Amorim and Camargos (2021) and Camargos and Barbosa (2010), and until recently, companies with low media and analyst coverage were unable to reach investors without going through intermediaries. Thus, the evidence suggests that live streaming can be a particularly interesting platform for companies with low coverage to disclose earnings, which reinforces the findings of the literature on social networks and their effects on shareholder coverage (Alexander & Gentry, 2014;Blankespoor et al, 2014;Bushee et al, 2010;Miller & Skinner, 2015).…”
Section: Determinants Of the Relevance Of Lives Webcastsmentioning
The objective of this study was to investigate whether voluntary financial disclosure through live streaming can determine changes in shareholder returns in the Brazilian market. Corporate disclosure through social media is a new phenomenon, driven by the impacts of the coronavirus disease 2019 (COVID-19) pandemic, and its effects are investigated from the perspective that high levels of investor attention are associated with company engagement with audiences. The findings contribute to the literature on investor and firm behavior with respect to disclosure in non-traditional settings. The work is also relevant because it uses web scraping to process unstructured texts. The study provides elements for the development of voluntary disclosure theory, free of intermediaries and closer to retail investors. The traditional event study technique was used, based on live streaming data obtained through web scraping and text mining. The multivariate regression model was used for additional tests. It was found that live streaming have a positive impact on stock prices, although these effects are volatile and tend to return to previous averages within 5 days. Additional analyses also revealed that the greater the number of subscribers to the channel, if the Chief Executive Officer (CEO) participates, if the topic involves the discussion of results, and if the company is not listed in the Bovespa index (Ibovespa), the greater the chances of the content of the live streaming having an abnormal impact.
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