The effect of asymmetric information risk on returns of stocks traded on the BM&FBOVESPA

The effect of asymmetric information risk on returns of stocks traded on the BM&FBOVESPA

ABSTRACT This study sought to analyze information asymmetry in the Brazilian stock market and its relation with the returns required from portfolios through the metrics volume-synchronized probability of informed trading. To do this, the study used actual data from the transactions of 142 stocks on the Brazilian Securities, Commodities and Futures Exchange (BM&FBOVESPA), within the period from May 1, 2014, to May 31, 2016. The results point out a high flow toxicity level in the orders of these stocks. In segment analyses of the stock market listing, data suggest there is no clue that stocks from the theoretically more overt segments have a lower toxicity level of order flows. The justification for this finding lies on the negative correlation observed between the market value of stocks and the toxicity level of orders. To test the effect of asymmetric information risk on stock returns, a factor related to the toxicity level of orders was added to the three-, four-, and five-factor models. Through the GRS test, we observed that the combination of factors that optimize the explanation of returns of the portfolios created was the one taking advantage of the factors market, size, profitability, investment, and information risk. To test the robustness of these results, the Average F-test was used in data simulated by the bootstrap method, and similar estimates were obtained. It was observed that the factor related to the book-to-market index becomes redundant in the national scenario for the models tested. Also, it was found that the factor related to information risk works as a complement to the factor size and that its inclusion leads to an improved performance of the models, indicating a possible explanatory power of information risk on portfolio returns. Therefore, data suggest that information risk is priced in the Brazilian stock market.

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Main Authors: Siqueira,Leonardo Souza, Amaral,Hudson Fernandes, Correia,Laíse Ferraz
Format: Digital revista
Language:English
Published: Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade, Departamento de Contabilidade e Atuária 2017
Online Access:http://old.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772017000300425
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spelling oai:scielo:S1519-707720170003004252017-10-03The effect of asymmetric information risk on returns of stocks traded on the BM&FBOVESPASiqueira,Leonardo SouzaAmaral,Hudson FernandesCorreia,Laíse Ferraz information risk return on assets PIN VPIN asset pricing ABSTRACT This study sought to analyze information asymmetry in the Brazilian stock market and its relation with the returns required from portfolios through the metrics volume-synchronized probability of informed trading. To do this, the study used actual data from the transactions of 142 stocks on the Brazilian Securities, Commodities and Futures Exchange (BM&FBOVESPA), within the period from May 1, 2014, to May 31, 2016. The results point out a high flow toxicity level in the orders of these stocks. In segment analyses of the stock market listing, data suggest there is no clue that stocks from the theoretically more overt segments have a lower toxicity level of order flows. The justification for this finding lies on the negative correlation observed between the market value of stocks and the toxicity level of orders. To test the effect of asymmetric information risk on stock returns, a factor related to the toxicity level of orders was added to the three-, four-, and five-factor models. Through the GRS test, we observed that the combination of factors that optimize the explanation of returns of the portfolios created was the one taking advantage of the factors market, size, profitability, investment, and information risk. To test the robustness of these results, the Average F-test was used in data simulated by the bootstrap method, and similar estimates were obtained. It was observed that the factor related to the book-to-market index becomes redundant in the national scenario for the models tested. Also, it was found that the factor related to information risk works as a complement to the factor size and that its inclusion leads to an improved performance of the models, indicating a possible explanatory power of information risk on portfolio returns. Therefore, data suggest that information risk is priced in the Brazilian stock market.info:eu-repo/semantics/openAccessUniversidade de São Paulo, Faculdade de Economia, Administração e Contabilidade, Departamento de Contabilidade e AtuáriaRevista Contabilidade & Finanças v.28 n.75 20172017-12-01info:eu-repo/semantics/articletext/htmlhttp://old.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772017000300425en10.1590/1808-057x201705230
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country Brasil
countrycode BR
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access En linea
databasecode rev-scielo-br
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region America del Sur
libraryname SciELO
language English
format Digital
author Siqueira,Leonardo Souza
Amaral,Hudson Fernandes
Correia,Laíse Ferraz
spellingShingle Siqueira,Leonardo Souza
Amaral,Hudson Fernandes
Correia,Laíse Ferraz
The effect of asymmetric information risk on returns of stocks traded on the BM&FBOVESPA
author_facet Siqueira,Leonardo Souza
Amaral,Hudson Fernandes
Correia,Laíse Ferraz
author_sort Siqueira,Leonardo Souza
title The effect of asymmetric information risk on returns of stocks traded on the BM&FBOVESPA
title_short The effect of asymmetric information risk on returns of stocks traded on the BM&FBOVESPA
title_full The effect of asymmetric information risk on returns of stocks traded on the BM&FBOVESPA
title_fullStr The effect of asymmetric information risk on returns of stocks traded on the BM&FBOVESPA
title_full_unstemmed The effect of asymmetric information risk on returns of stocks traded on the BM&FBOVESPA
title_sort effect of asymmetric information risk on returns of stocks traded on the bm&fbovespa
description ABSTRACT This study sought to analyze information asymmetry in the Brazilian stock market and its relation with the returns required from portfolios through the metrics volume-synchronized probability of informed trading. To do this, the study used actual data from the transactions of 142 stocks on the Brazilian Securities, Commodities and Futures Exchange (BM&FBOVESPA), within the period from May 1, 2014, to May 31, 2016. The results point out a high flow toxicity level in the orders of these stocks. In segment analyses of the stock market listing, data suggest there is no clue that stocks from the theoretically more overt segments have a lower toxicity level of order flows. The justification for this finding lies on the negative correlation observed between the market value of stocks and the toxicity level of orders. To test the effect of asymmetric information risk on stock returns, a factor related to the toxicity level of orders was added to the three-, four-, and five-factor models. Through the GRS test, we observed that the combination of factors that optimize the explanation of returns of the portfolios created was the one taking advantage of the factors market, size, profitability, investment, and information risk. To test the robustness of these results, the Average F-test was used in data simulated by the bootstrap method, and similar estimates were obtained. It was observed that the factor related to the book-to-market index becomes redundant in the national scenario for the models tested. Also, it was found that the factor related to information risk works as a complement to the factor size and that its inclusion leads to an improved performance of the models, indicating a possible explanatory power of information risk on portfolio returns. Therefore, data suggest that information risk is priced in the Brazilian stock market.
publisher Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade, Departamento de Contabilidade e Atuária
publishDate 2017
url http://old.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772017000300425
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