Marina Arantes Braga Prado
Master's – Long run bull and bear cycles in Brazil: some empirical evidences
Advisor: Prof. Dr. José Roberto Ferreira Savóia
Comission: Profs. Drs. Eduardo Augusto do Rosário Contani, José Roberto Securato and Michele Nascimento Jucá
Link Youtube: https://youtu.be/ELTTmeTFjrY
It is possible to empirically verify the occurrence of long-term cycles in the stock markets. This study aims to identify and analyze the bull and bear cycles of the Brazilian stock market in the period from 1967 to 2017. We analyzed the return and identified allocation strategies that best respond to the trend of the cycles. For the analysis of the cycles we used an intentional sample grouped according to three different criteria, namely: 1) value and growth, and 2) small cap; and 3) a samples of different allocations between fixed and variable income along with the cycles. Concerning methodology, we adopted the approach of Albuquerque et al. (2015) to determine de cycles. For the identification of the different groups of shares, we used Nefin (2017) data-set. The results show the existence of four long-term cycles on the Brazilian stock exchange from 1967 to 2017. They last an average of 12 years and are highly related to the economic fundamentals and political changes in the country.
On the one hand, it was not possible to statistically confirm the existence of growth and the small cap premium, but, on the other hand, the value premium exists and is significant because these shares have superior profitability only during bull markets. Besides, it was possible to set up investment strategies, allocating different weights in fixed income and variable income during different stages of the cycles, which generated an excess return. The main contributions of the paper are 1) we identified the existence of long-term cycles on the Brazilian stock market, 2) we observed the value premium only during upward cycles, and 3) we showed that it is possible to set up allocation strategies based on cycles that generate excess returns.
*Abstract provided by the author