End of Behavioral Finance
Abstract: While the popularity of behavioral finance has increased and behavioral biases have got so pervasive that everybody seems to be biased, the question is whether the behavioral finance experts are bias free? If mean reversion failure is the ubiquitous phenomenon witnessed across markets and nature, then is psychology or mood not just a tail explanation of an elephant phenomenon?
A EFICIÊNCIA DO MERCADO DE CAPITAIS BRASILEIROS PELA ANÁLISE DO EFEITO MOMENTO THE EFFICENCY OF BRAZILIAN STOCK MARKET BY THE MOMENTUM EFFECT ANALYSIS
A Hipótese dos Mercados Eficientes (HME) concebida por Fama (1970) afirma que o investidor é racional, bem informado e maximizador da utilidade esperada. O aparecimento de fenômenos contrários a esse comportamento racional do mercado, dentre os quais se destaca o chamado Efeito Momento, fez com que os pressupostos da HME fossem colocados em xeque. O presente artigo avalia a eficiência do mercado de capitais brasileiro, pela identificação desta anomalia no período de janeiro de 1994 a setembro de 2009, de acordo com a metodologia empregada por Jegadeesh e Titman (1993). Com base nos retornos médios mensais das carteiras de ativos classificadas como vencedoras e perdedoras, foram identificados sete subperíodos nos quais o Efeito Momento fez-se presente, comprovando que o mercado de capitais brasileiro alterna períodos de baixa e alta eficiência.
Reversion to the Mean, Taken to the Extreme
Mean reversion in stock prices has been associated with noise or ‘noise traders’ and on an aggregate level with the value effect. The mean reverting process has not only been observed in stock prices but also in reported earnings. A new cross-sectional equilibrium model is developed based on the observation that market aggregate price developments are positively related to earnings yield and market aggregate earnings developments are negatively related to earnings yield. As the two dependencies are close to linear, two coupled differential equations can be formulated and solved. The model shows that on average, portfolios with ‘value’ or ‘growth’ stocks will drift towards a mean valuation ratio. The time-dependent calibration shows that the speed with which portfolios have drifted towards earnings yield equilibrium has increased by almost a factor of 3 over the last 20 years. Market participants are doing an increasingly good job at predicting earnings developments, but the pricing of these earnings fluctuates over time. Data suggests that participation of ‘noise traders’ is strongly reduced after a market crash or strong bear market and builds up in the years after a crash. The model can be used by value investors as guidance for sector allocation and to optimize holding period.