Size matters: The impact of financial liberalization on individual firms

Christoffersen, Peter; Chung, Hyunchul; Errunza, Vihang R.

doi:10.1016/j.jimonfin.2006.09.003

Cited by 34 publications

(38 citation statements)

References 63 publications

(69 reference statements)

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“…(ii) We conduct an aggregate analysis first, but we also do a firm-level (portfolio-level) analysis, which was so far neglected by all studies covering the Brazilian context, whereas international studies have considered this important dimension of analysis (see Chari and Henry, 2004;Patro and Wald, 2005;Christoffersen, Chung & Errunza, 2006). Such international studies focused essentially on the role of firm size as a mediator of the revaluation effect.…”

Section: Graph 4 -Ibovespa Average Dividend Yield -2001-2013mentioning

confidence: 99%

Foreign Portfolio Capital Flows and Stock Returns: A Study of Brazilian Listed Firms

Loncan

Caldeira

2015

SSRN Journal

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This study analyzed the effect of foreign portfolio capital flows on stock returns of Brazilian listed firms through a 6-factors APT model, in which an additional risk factor for foreign portfolio capital flows was included. First, an aggregate analysis was conducted. The partial effect of foreign portfolio capital flows on the IBOVESPA index's returns was statistically significant and positive. Next, a disaggregate analysis was also implemented, in which portfolios of stocks were sorted by sector of economic activity, level of risk and level of corporate governance. Foreign portfolio capitals caused increases in returns especially for sectors related to commodities, industry and cyclical consumption. For the portfolios sorted by risk (in which the stocks' betas were used as a risk parameter for sorting), foreign capitals increased the returns of mid-high and high beta portfolios, but decreased the returns of low and low-mid beta portfolios. For corporate governance portfolios, the firms listed on the Novo Mercado segment (according to BMF&Bovespa criteria) experienced a statistically significant revaluation effect. Overall, the results of the study provide support to the revaluation effect hypothesis. KeywordsForeign portfolio capital flows. Stock returns. Arbitrage pricing theory. ResumoEste estudo analisou o efeito dos fluxos de capital de portfólio nos retornos das ações de empresas brasileiras listadas em bolsa através de um modelo APT (Arbitrage Pricing Theory), no qual foi adicionado um fator de risco para os fluxos de capital de portfólio. Em uma análise agregada, o efeito parcial do fluxo de capital de portfólio no retorno do índice IBOVESPA foi estatisticamente significante e positivo. A seguir, uma análise desagregada foi realizada, na qual portfólios de ações foram formados utilizando o setor de atividade econômica, o nível de risco e o nível de governança corporativa. Fluxos de capital de portfólio causaram aumentos nos retornos especialmente para os setores de commodities, indústria e consumo cíclico. Para os portfólios de risco (nos quais o coeficiente beta das ações foi usado como parâmetro para classificação), os capitais ♦ João Caldeira wishes to thank CNPq (process 485561/2013-1) for financial support.Estud. Econ., São Paulo, vol.45, n.4, p. 859-895, out.-dez. 2015 Palavras-ChaveFluxos estrangeiros de capital de portfólio. Retornos das ações. Arbitrage pricing theory. Classificação JELF320. G120. G150. G320.

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Section: Graph 4 -Ibovespa Average Dividend Yield -2001-2013mentioning

confidence: 99%

Foreign Portfolio Capital Flows and Stock Returns: A Study of Brazilian Listed Firms

Loncan

Caldeira

2015

SSRN Journal

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“…Our work is related to several recent studies. For example, Christoffersen et al (2006) investigate the impact of stock market liberalization in emerging markets on individual-firm volatility rather than on the aggregated market-index volatility. The authors trace liberalization back to a specific date, and proxy foreign investors' demand by using firm size to investigate the cross-sectional differences among individual firms.…”

Section: Introductionmentioning

confidence: 99%

The effect of financial liberalization on stock-return volatility in GCC markets

Bley

Saad

2011

Journal of International Financial Markets, Institutions and Mo

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“…Christoffersen, Chung, and Errunza (2006) estimated the revaluation effect by checking whether the returns yielded by emerging markets' after financial liberalization were higher when compared to a global returns benchmark. They found a positive revaluation effect, being the returns on emerging markets' stocks higher than the global benchmark during the liberalization of capital flows.…”

Section: The Effects Of Financial Integration On the Cost Of Equity Cmentioning

confidence: 99%

Financial Integration and the Cost of Capital: A Study of the Brazilian Equity Market

Loncan¹,

Caldeira²

2015

IJEF

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This study analyzes the effect of financial integration on the cost of equity capital of Brazilian listed firms. According to the relevant literature, foreign capital flows are expected to increase stock returns, the so-called revaluation effect. For standard valuation models, higher stock prices imply a lower cost of equity capital, as expected returns fall as stock prices rise. Two analyses are conducted: first, a statistical analysis based on a partial general equilibrium model as suggested by Henry (2003) and Stulz (1999) provides insights that the cost of equity capital in Brazil reduced following the integration with the Global equity market in the period between 1996 and 2013, as expected returns decreased over time. In the second part of the study, a regression analysis is conducted, by estimating the effect of foreign portfolio capital flows on the Brazilian stock market returns using a Global CAPM with an additional parameter for foreign portfolio capital flows. The results of the regression analysis provide evidence that foreign portfolio capital flows are associated to an increase in excess returns on the Brazilian stock market (after controlling for systematic risk). Also, in a second regression estimated between the dividend yield (a direct measure of the cost of equity) and net foreign portfolio capitals, the partial effect of net foreign capitals on the Dividend Yield was negative. These findings are in line with the revaluation effect hypothesis and also support the argument that financial globalization reduces the cost of capital for a previously segmented equity market.

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Size matters: The impact of financial liberalization on individual firms

Cited by 34 publications

References 63 publications

Foreign Portfolio Capital Flows and Stock Returns: A Study of Brazilian Listed Firms

Foreign Portfolio Capital Flows and Stock Returns: A Study of Brazilian Listed Firms

The effect of financial liberalization on stock-return volatility in GCC markets

Financial Integration and the Cost of Capital: A Study of the Brazilian Equity Market

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