Abstract
ABSTRACT Purpose: Explain the causes of inefficiencies in asset pricing on the Brazilian stock exchange through the behavioral finance hypothesis. Originality/value: Research made in the stock market over the last decades suggests that there is evidence of obtaining returns above the market average, through the purchase of undervalued assets, that is, when it has a low relation between the price and the fundamentals of the company. However, there is a notable discrepancy regarding the interpretation of causes among academics. The efficient markets hypothesis was presented, which is based on the premise of the strict rationality of economic agents. On the other hand, the behavioral finance theory was also discussed, which presents different assumptions. Design/methodology/approach: Using the historical quotes of the shares traded on B3, extracted from economática(r)'s database, the present work used the Magic Formula methodology to investigate the behavioral effect through the inefficiencies found in the pricing of these assets. Findings: The results suggest that the Brazilian stock market, in conformity with works of the same nature performed in markets in other countries, has inefficiencies in the pricing of assets, so that it is possible to obtain advantages from economic agents. The interpretation for the causes of such inefficiencies is based on the premises of behavioral finance, and points to the existence of a limitation in the rationalization of these agents.
Highlights
The discussion regarding the predictability of returns above the market average has been the subject of various researches over the past few decades
Using the historical quotes of the shares traded on B3, extracted from economática®’s database, the present work used the Magic Formula methodology to investigate the behavioral effect through the inefficiencies found in the pricing of these assets
The results suggest that the Brazilian stock market, in conformity with works of the same nature performed in markets in other countries, has inefficiencies in the pricing of assets, so that it is possible to obtain advantages from economic agents
Summary
The discussion regarding the predictability of returns above the market average has been the subject of various researches over the past few decades. One of which is the value strategy, which has been tested for a long time and has numerous evidence in its favor. Such confirmations have been generating a great discussion about the causes, there is no consensus among academics (Thaler, 2019). The interpretation of the Efficient Markets Hypothesis (EMH) was questioned by such evidence. The behavioral finance appeared with different interpretations of the causes of this evidence. New explanations were necessary to maintain the EMH (Fama & French, 1993)
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