Tests of conditional asset pricing models in the brazilian stock market

In this paper, we test a version of the conditional CAPM with respect to a local market portfolio, proxied by the Brazilian stock index during the period 1976-1992. We also test a conditional APT modeI by using the difference between the 3-day rate (Cdb) and the overnight rate as a second factor in addition to the market portfolio in order to capture the large inflation risk present during this period. The conditional CAPM and APT models are estimated by the Generalized Method of Moments (GMM) and tested on a set of size portfolios created from individual securities exchanged on the Brazilian markets. The inclusion of this second factor proves to be important for the appropriate pricing of the portfolios.

Diversifica����o internacional no contexto brasileiro

Este trabalho contribui a discuss��o de diversifica����o internacional no contexto de investidores brasileiros com refer��ncia na moeda local (Reais). O trabalho testa as seguintes hip��teses: (1) se a adi����o de ativos internacionais n��o aumenta a efici��ncia (melhora na rela����o retorno/risco) de carteiras somente com ativos brasileiros, (2) se carteiras de menor risco exigem mais aloca����es internacionais e, (3) se aloca����o de ativos �� parecida para investidores com refer��ncias em d��lar ou em reais. Esse trabalho utiliza modelos j�� conhecidos de fronteiras eficientes com aplica����o de t��cnicas que utilizam rotinas de Monte Carlo para suavizar poss��veis erros na estima����o dos retornos das classes de ativos, que incorporam ainda incertezas sobre o c��mbio. Nas simula����es s��o utilizadas uma cesta de ativos locais e uma cesta de ativos que melhor representa o mercado internacional. Apesar da grande maioria dos investidores brasileiros utilizarem muito pouco ativos internacionais em suas carteiras, seja por motivos de Home Bias, fatores hist��ricos macroecon��micos evidenciados pelas altas taxas de juros ou limita����es regulat��rias, os resultados emp��ricos demonstram que existem ganhos de efici��ncia para as carteiras de investidores brasileiros ao se incluir ativos internacionais na aloca����o de ativos. Esses ganhos de efici��ncia s��o evidenciados para todos os perfis de risco, desde os mais conservadores at�� os perfis mais agressivos. Os resultados mostram que quanto maior o perfil de risco da carteira, maior �� a aloca����o internacional que maximiza a efici��ncia da carteira. E por ��ltimo, a refer��ncia da moeda muda significativamente a aloca����o eficiente de carteiras, carteiras com refer��ncia em d��lar exigem menos diversifica����o com ativos em reais do que carteiras com refer��ncia em Reais exigem diversifica����o com ativos internacionais.

Exact arbitrage, well-diversified portfolios and asset pricing in large markets

: In a model of a nancial market with an atomless continuum of assets, we give a precise and rigorous meaning to the intuitive idea of a \well-diversi ed" portfolio and to a notion of \exact arbitrage". We show this notion to be necessary and su cient for an APT pricing formula to hold, to be strictly weaker than the more conventional notion of \asymptotic arbitrage", and to have novel implications for the continuity of the cost functional as well as for various versions of APT asset pricing. We further justify the idealized measure-theoretic setting in terms of a pricing formula based on \essential" risk, one of the three components of a tri-variate decomposition of an asset's rate of return, and based on a speci c index portfolio constructed from endogenously extracted factors and factor loadings. Our choice of factors is also shown to satisfy an optimality property that the rst m factors always provide the best approximation. We illustrate how the concepts and results translate to markets with a large but nite number of assets, and relate to previous work.

Integrability and the demand for monetary assets: an alternative approach to an old problem

This note provides necessary and su��cient conditions for some speci���c multidimensional consumer���s surplus welfare measures to be well posed (path independent). We motivate the problem by investigating partial-equilibrium measures of the welfare costs of in���ation. The results can also be used for checking path independence of alternative de���nitions of Divisia indexes of monetary services. Consumer theory classically approaches the integrability problem by considering compensated demands, homothetic preferences or quasi-linear utility functions. Here, instead, we consider demands of monetary assets generated from a shopping-time perspective. Paralleling the above mentioned procedure, of ���nding special classes of utility functions that satisfy the integrability conditions, we try to infer what particular properties of the transacting technology could assure path independence of multidimensional welfare measures. We show that the integrability conditions are satis���ed if and only if the transacting technology is blockwise weakly separable. We use two examples to clarify the point.

Testing the optimality of aggregate consumption decisions: is there rule-of-thumb behavior?

Consumption is an important macroeconomic aggregate, being about 70% of GNP. Finding sub-optimal behavior in consumption decisions casts a serious doubt on whether optimizing behavior is applicable on an economy-wide scale, which, in turn, challenge whether it is applicable at all. This paper has several contributions to the literature on consumption optimality. First, we provide a new result on the basic rule-of-thumb regression, showing that it is observational equivalent to the one obtained in a well known optimizing real-business-cycle model. Second, for rule-of-thumb tests based on the Asset-Pricing Equation, we show that the omission of the higher-order term in the log-linear approximation yields inconsistent estimates when lagged observables are used as instruments. However, these are exactly the instruments that have been traditionally used in this literature. Third, we show that nonlinear estimation of a system of N Asset-Pricing Equations can be done efficiently even if the number of asset returns (N) is high vis-a-vis the number of time-series observations (T). We argue that efficiency can be restored by aggregating returns into a single measure that fully captures intertemporal substitution. Indeed, we show that there is no reason why return aggregation cannot be performed in the nonlinear setting of the Pricing Equation, since the latter is a linear function of individual returns. This forms the basis of a new test of rule-of-thumb behavior, which can be viewed as testing for the importance of rule-of-thumb consumers when the optimizing agent holds an equally-weighted portfolio or a weighted portfolio of traded assets. Using our setup, we find no signs of either rule-of-thumb behavior for U.S. consumers or of habit-formation in consumption decisions in econometric tests. Indeed, we show that the simple representative agent model with a CRRA utility is able to explain the time series data on consumption and aggregate returns. There, the intertemporal discount factor is significant and ranges from 0.956 to 0.969 while the relative risk-aversion coefficient is precisely estimated ranging from 0.829 to 1.126. There is no evidence of rejection in over-identifying-restriction tests.

Private or public? a taxonomy of optimal ownership and management regimes

We develop a theory of public versus private ownership based on value diversion by managers. Government is assumed to face stronger institutional constraints than has been assumed in previous literature. The model which emerges from these assumptions is fexible and has wide application. We provide amapping between the qualitative characteristics of an asset, its main use - including public goods characteristics, and spillovers toother assets values - and the optimal ownership and management regime. The model is applied to single and multiple related assets. We address questions such as; when is it optimal to have one of a pair ofr elated assets public and the other private; when is joint management desirable; and when should a public asset be managed by the owner of a related private asset? We show that while private ownership can be judged optimal in some cases solely on the basis of qualitative information, the optimality of any other ownership and management regimes relies on quantitative analysis. Our results reveal the situations in which policy makers will have difficulty in determining the opimal regime.

Contagion and regulation in endogenous bank networks

We develop a simple model of endogenous bank networks to study financial contagion and how leverage regulation may affect it. Banks maximize expected profit by choosing the optimal allocation of resources between three different classes of assets. An interbank network arise as result of loans between banks, creating a direct channel of contagion in the financial system. Contagion may occur when the realized return of the risky asset is sufficiently low to make a bank insolvent, subsequently triggering a cascade effect that propagates through default in interbank loans. Contrary to what would be expected, our results show that despite forcing banks to deleverage, increasing minimum capital requirements may lead to a system with higher aggregate levels of default.

Relationship of Coca-Cola Brazil and the communities participant of the social projects: (im) possibilities

Five years ago, Coca-Cola Brasil launched a program named ���Coletivo Project���, with the purpose to enjoy an opportunity of increase on the potential consumption power of the low-income pyramid population that lived on the ���favelas���. At the same time, it had the objective to offer to them a social and financial impact, which is a trust on the future, the first job for the young adults��� participant of this program and an increase on their family source of revenues, through salaries. This was possible because through Coletivo Project, Coca-Cola identified the assets they have through its value chain, focusing on its competencies, such as retail, merchandising and logistics to apply them on courses to teach the young people of the communities and, as a result, form them to be able to find their new jobs. Internal indicators followed in a monthly basis by Coca-Cola demonstrated that the communities that had the presence of Coletivos, in comparison to those without Coletivos, had social and financial impacts. The social was the fact that the young formed started to have more confidence on their future and felt with a higher self-stem to apply for and obtain their first job. On the financial aspect, they were benefit through the increasing of their revenues and also their families and Coca-Cola had an increase on sales, when compared to a community without a Coletivo Project installed. This dissertation seeks to identify the current relationship between Coca-Cola and the communities, through the Coletivo Project classes performed on the NGOs located at this places, in order to identify opportunities for improvement the benefits and the impacts (financial and social) on the NGOs, communities and all stakeholders of this project. This dissertation examines this relationship, through presence interviews performed on four NGOs selected, and located on four of the twenty communities, that are participants of the Coletivo Project on Rio de Janeiro city. These interviews performed with the students, representatives and educators of these NGOs. The covered period of the interviews ranges from April 2014 to August 2014. This dissertation draws on first-hand qualitative empirical evidence gathered through extensive fieldwork. The main findings among possibilities for improvement by Coca-Cola are: ��� Implement new courses, beyond those existent at Coca-Cola (Retail, Logistics, etc.). ��� Increase the content of the employment module of Coletivo classes, focusing on improving educational, cultural, economic, political, social and professional life. ��� Increase the scale, through the quantity of positions on the Retail Coletivo classes. ��� Develop cultural and sports events with the communities. ��� Support the points of sales, participant of the practical classes of the Coletivo Retail, with refrigerators and furniture with the Coca-Cola logo. ��� Provide coffee breaks and meals during the Coletivo classes, using Coca-Cola beverages and partners for food items, developing the nutrition platform of the company and filling a need of the students. ��� Perform a research with all stakeholders related to this Project, including those students and mothers that are not participant of the Coletivo, in order to listen to them, understand their needs, and offer solutions to fulfill these gaps. and on the side of the ��� Perform partnerships with educational institutions to make viable other type of courses, more technical, but that have a relation with the core business of Coca-Cola Brasil, such as marketing. ��� Implement the Coca-Cola University, already existed at the Company. ��� Create courses or activities focused on the children. Regarding the impossibilities, the findings are: ��� Improve the basic sanitation of the communities. ��� Improve the safety on the communities. ��� Provide a home to those do not have. ��� Implement courses that have no relationship with Coca-Cola business and expertise, such as gastronomy. However, Coca-Cola can influence stakeholders on that. The results suggest to executives of Coca-Cola that a deep and a qualitative research on the communities of Brazil, in order to listen young people, educators, mothers, partners that offer jobs, from Coletivo and out of the project, is mandatory, to understand their needs, dreams, complains and offer valuable solutions to all.

Brazil's middle classes

This paper discusses the Brazilian middle class, its definition, evolution, profile, attitudes and durability. It describes the methodology that uses per capita household income derived from household surveys to determine economic classes. It gauges their respective aggregate trends and gauges individual income risks using longitudinal data. An income-based approach is only the beginning. This initial approach is integrated with subjective data to measure expectations and attitudes of different economic classes combined with a structural approach that takes into account the roles played by human, physical and social capital in the production factors, in terms of income generation and temporal allocation of resources. In all cases, income is the chosen numeraire by which all dimensions analyzed are projected. In the end of the article, all forms of measurement proposed ��� current income, consumption smoothing (permanent income), productive assets and subjective aspects ��� are combined to discuss the design of public policies aimed at the Brazilian middle classes.

Life Cycle Models, Heterogeneity of Initial Assets,and Wealth Inequality

Life cycle general equilibrium models with heterogeneous agents have a very hard time reproducing the American wealth distribution. A common assumption made in this literature is that all young adults enter the economy with no initial assets. In this article, we relax this assumption ��� not supported by the data - and evaluate the ability of an otherwise standard life cycle model to account for the U.S. wealth inequality. The new feature of the model is that agents enter the economy with assets drawn from an initial distribution of assets, which is estimated using a non-parametric method applied to data from the Survey of Consumer Finances. We found that heterogeneity with respect to initial wealth is key for this class of models to replicate the data. According to our results, American inequality can be explained almost entirely by the fact that some individuals are lucky enough to be born into wealth, while others are born with few or no assets.

Contagion in financial networks: a network theory and agent-based approaches to modeling the spread of risk in financial systems

Esta disserta����o estuda a propaga����o de crises sobre o sistema financeiro. Mais especi- ficamente, busca-se desenvolver modelos que permitam simular como um determinado choque econ��mico atinge determinados agentes do sistema financeiro e apartir dele se propagam, transformando-se em um problema sist��mico. A disserta����o �� dividida em dois cap��tulos,al��m da introdu����o. O primeiro cap��tulo desenvolve um modelo de propa- ga����o de crises em fundos de investimento baseado em ci��ncia das redes.Combinando dois modelos de propaga����o em redes financeiras, um simulando a propaga����o de perdas em redes bipartites de ativos e agentes financeiros e o outro simulando a propaga����o de perdas em uma rede de investimentos diretos em quotas de outros agentes, desenvolve-se um algoritmo para simular a propaga����o de perdas atrav��s de ambos os mecanismos e utiliza-se este algoritmo para simular uma crise no mercado brasileiro de fundos de investimento. No cap��tulo 2,desenvolve-se um modelo de simula����o baseado em agentes, com agentes financeiros, para simular propaga����o de um choque que afeta o mercado de opera����es compromissadas.Criamos tamb��m um mercado artificial composto por bancos, hedge funds e fundos de curto prazo e simulamos a propaga����o de um choque de liquidez sobre um ativo de risco securitizando utilizado para colateralizar opera����es compromissadas dos bancos.

Um modelo de competi����o baseada em tempo nos mercados financeiros

O objetivo deste trabalho �� modelar o comportamento estrat��gico dos indiv��duos diante de um choque estoc��stico que desloca o pre��o de determinado ativo financeiro do seu equil��brio inicial. Investiga-se o caminho do pre��o de mercado em dire����o ao novo equil��brio, conduzido pelas sucessivas negocia����es dos agentes em busca de oportunidades de obter lucros imediatos. Os operadores, que por suposi����o possuem fun����es de utilidade avessas ao risco, devem escolher a quantidade ��tima transacionada e quanto devem aguardar para executar as suas ordens, tendo em vista a diminui����o da volatilidade do pre��o do ativo �� medida que as transa����es se sucedem ap��s o choque. Procura-se demonstrar que os operadores que aceitam incorrer em riscos mais elevados negociam com maior frequ��ncia e em volumes e velocidades maiores, usufruindo lucros esperados mais altos que os demais.

Preferences, common knowledge and speculative trade

We study the proposition that if it is common knowledge that en allocation of assets is ex-ante pareto efficient, there is no further trade generated by new information. The key to this result is that the information partitions and other characteristics of the agents must be common knowledge and that contracts, or asset markets, must be complete. It does not depend on learning, on 'lemons' problems, nor on agreement regarding beliefs and the interpretation of information. The only requirement on preferences is state-additivity; in particular, traders need not be risk-averse. We also prove the converse result that "no-trade results" imply that traders' preferences can be represented by state-additive utility functions. We analyze why examples of other widely studied preferences (e.g., Schmeidler (1989)) allow "speculative" trade.

The role of no-arbitrage on forecasting: lessons from a parametric term structure model

Parametric term structure models have been successfully applied to innumerous problems in fixed income markets, including pricing, hedging, managing risk, as well as studying monetary policy implications. On their turn, dynamic term structure models, equipped with stronger economic structure, have been mainly adopted to price derivatives and explain empirical stylized facts. In this paper, we combine flavors of those two classes of models to test if no-arbitrage affects forecasting. We construct cross section (allowing arbitrages) and arbitrage-free versions of a parametric polynomial model to analyze how well they predict out-of-sample interest rates. Based on U.S. Treasury yield data, we find that no-arbitrage restrictions significantly improve forecasts. Arbitrage-free versions achieve overall smaller biases and Root Mean Square Errors for most maturities and forecasting horizons. Furthermore, a decomposition of forecasts into forward-rates and holding return premia indicates that the superior performance of no-arbitrage versions is due to a better identification of bond risk premium.

Capital structure choice of foreign subsidiaries: evidence from multinationals in Brazil

Is the capital structure choice of a foreign subsidiary different from the choice of a comparable company controlled by nationals? If so, what are the differences? In this paper we shed some light on these questions by looking at a sample of foreign subsidiaries in Brazil over the period 1985 to 1994. We find that the foreign subsidiaries in our sample are more levered than their Brazilian counterparts. This difference, however, has declined over time. The evidence is consistent with the hypothesis that foreign subsidiaries increase leverage as a hedge against an expropriation of assets in a nationalization process.