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

33 Pages Posted: 10 Apr 2015

See all articles by Tiago Loncan

Tiago Loncan

University of Strathclyde, Department of Accounting and Finance, Students

João Caldeira

Universidade Federal de Santa Catarina & CNPq

Date Written: April 8, 2015

Abstract

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, in an aggregate analysis, the partial effect of foreign portfolio capital flows on the IBOVESPA index’s returns was statistically significant and positive. Next, in a disaggregate analysis, 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.

Keywords: Foreign Portfolio Capital Flows, Stock Returns, Arbitrage Pricing Theory.

JEL Classification: F320, G120, G150, G320

Suggested Citation

Loncan, Tiago and Caldeira, João, Foreign Portfolio Capital Flows and Stock Returns: A Study of Brazilian Listed Firms (April 8, 2015). Available at SSRN: https://ssrn.com/abstract=2591908 or http://dx.doi.org/10.2139/ssrn.2591908

Tiago Loncan (Contact Author)

University of Strathclyde, Department of Accounting and Finance, Students ( email )

Glasgow
United Kingdom

João Caldeira

Universidade Federal de Santa Catarina & CNPq ( email )

R. Eng. Agronômico Andrei Cristian Ferreira, s/n
Florianópolis, SC Rio Grande do Sul 90480-004
Brazil

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