Benjamin M. Tabak

Evolution of Bank Efficiency in Brazil: A DEA Approach

This paper investigates cost, technical and allocative efficiencies for Brazilian banks in the recent period (2000-2007). We use Data Envelopment Analysis (DEA) to compute efficiency scores. Brazilian banks were found to have low levels of economic (cost) efficiency compared to banks in Europe and in the US. For the period with high macroeconomic volatility (2000-2002) the economic inefficiency in Brazilian banks can be attributed mainly to technical inefficiency rather than allocative inefficiency. State-owned banks are significantly more cost efficient than foreign, private domestic and private with foreign participation. There is no evidence of differences in economic efficiency due to type of activity and bank size. These results may provide some useful guidance for financial regulators and bank managers.

Tests of the random walk hypothesis for equity markets: evidence from China, Hong Kong and Singapore

This study tests the random walk hypothesis for China, Hong Kong and Singapore. Using variance ratio tests, robust to heteroskedasticity and employing a recently developed bootstrap technique to customize percentiles for inference purposes it is found that Class A shares for Chinese stock exchanges and the Hong Kong equity markets are weak form efficient. However, Singapore and Class B shares for Chinese stock exchanges do not follow the random walk hypothesis, which suggests that liquidity and market capitalization may play a role in explaining results of weak form efficiency tests.

Determinants of Bank Efficiency: the case of Brazil

This paper analyzes the efficiency of the Brazilian banking sector over the post-privatization period of 2000-2007. We employ a Bayesian stochastic frontier approach, which provides exact efficiency estimates and confidence intervals and thus, allows an accurate comparison across institutions and bank groups. The results suggest that large banks are the most cost and profit efficient, supporting the concentration process observed in recent years. Foreign banks have achieved a good performance through either the establishment of new affiliates and the acquisition of local banks. The remaining public banks have had improvements in cost efficiency, but are relatively profit inefficient. Finally, we observe a positive impact of capitalization on efficiency.

The Dynamic Relationship Between Stock Prices And Exchange Rates: Evidence For Brazil

This paper studies the dynamic relationship between stock prices and exchange rates in the Brazilian economy. We use recently developed unit root and cointegration tests, which allow endogenous breaks, to test for a long run relationship between these variables. We performed linear, and nonlinear causality tests after considering both volatility and linear dependence. We found that there is no long run relationship, but there is linear Granger causality from stock prices to exchange rates, in line with the portfolio approach: stock prices lead exchange rates with a negative correlation. Furthermore, we found evidence of nonlinear Granger causality from exchange rates to stock prices, in line with the traditional approach: exchange rates lead stock prices. We believe these findings have practical applications for international investors and in the design of exchange rate policies.

The random walk hypothesis and the behaviour of foreign capital portfolio flows: the Brazilian stock market case

In this paper the random walk hypothesis is tested for a set of daily Brazilian stock data given by the São Paulo Stock Exchange Index (IBOVESPA) in the period of 1986–1998. A rolling variance ratio test for different investment horizons was conducted, and it is concluded that prior to 1994 the random walk hypothesis is rejected but after that it cannot be rejected. Institutionally maturing markets, increasing liquidity and the openness of Brazilian markets for international capital can explain this increase of efficiency of the Brazilian stock market. An error-correction model is used to explain the relationship between the IBOVESPA and foreign portfolio inflows. Evidence suggests that the release of foreign capital control is one of the main determinants of increased efficiency in the Brazilian equity market.In this paper the random walk hypothesis is tested for a set of daily Brazilian stock data given by the Sao Paulo Stock Exchange Index (IBOVESPA) in the period of 1986-1998. A rolling variance ratio test for different investment horizons was conducted, and it is concluded that prior to 1994 the random walk hypothesis is rejected but after that it cannot be rejected. Institutionally maturing markets, increasing liquidity and the openness of Brazilian markets for international capital can explain this increase of efficiency of the Brazilian stock market. An error-correction model is used to explain the relationship between the IBOVESPA and foreign portfolio inflows. Evidence suggests that the release of foreign capital control is one of the main determinants of increased efficiency in the Brazilian equity market.

The rescaled variance statistic and the determination of the Hurst exponent

A major issue in statistical physics literature is the study of the long range dependence phenomenon usually presented in natural, social and financial processes. In particular, a big part of this literature relies on the determination of a parameter known as the Hurst exponent. Although many methods have been proposed to deal with this task, none of them are suitable for any time series and sometimes when applied to the same time series present conflicting results. In this context, this paper presents a new method based on the rescaled variance statistic which can be used efficiently to this end.

Long-Range Dependence in Exchange Rates: the case of the European Monetary System

In this work we measure the evolution of the long-range dependence phenomenon of returns and volatilities of nominal British exchange rates (British pound against US dollar) futures contracts negotiated on the Chicago Mercantile Exchange from 1986 to 2004. The measurement employs the R/S classic analysis, Detrended Fluctuation Analysis and Generalized Hurst exponents, upon a 1008-observation window, which moves along the data. We obtain as a result, the effects of the 1992 European financial crisis on the measurements of the long-range dependency phenomenon. After the crisis the returns of this futures contract showed no signs of the long-range memory, which existed before the crisis. The volatility presented moderate long-range memory the whole time. We also test for long-memory in European currencies inside the European Monetary System and find evidence of moderate long memory, which suggests that being inside the EMS increases predictability.

Market efficiency of Brazilian exchange rate: Evidence from variance ratio statistics and technical trading rules

This study utilizes the variance ratio test to examine the behavior of Brazilian exchange rate. We show that adjustments for multiple tests and a bootstrap methodology must be employed in order to avoid size distortions. We propose a block bootstrap scheme and show that it has much nicer properties than the traditional Chow-Denning [Chow, K.V., Denning, K.C., 1993. A simple multiple variance ratio test. Journal of Econometrics 58 (3), 385-401] multiple variance ratio tests. Overall, the method proposed in the paper provides evidence refuting the random walk behavior for the Brazilian exchange rate for long investment horizon, but consistent with the random walk hypothesis for short-run horizon. Additionally, we also test for the predictive power of variable moving average (VMA) and trading range break (TRB) technical rules and find evidence of forecasting ability for these rules. Nonetheless, the excess return that can be obtained from such rules is not significant, suggesting that such predictability is not economically significant.

Optimal monetary rules: the case of Brazil

Within a dynamic programming approach, an optimal rule for the central bank to attain its inflation targeting goals is derived. The short-run nominal interest rate is used as an instrument to achieve monetary objectives. The model is tested for the Brazilian economy and compared with results found for other countries. Evidence for the estimated feedback interest rule for the Central Bank suggests that the cost of reducing inflation in an open economy is lower than that of a closed economy.

The long-range dependence phenomena in asset returns: the Chinese case

This paper studies the segmented structure of the Chinese stock market, which is a unique opportunity to investigate the possible sources of the long-range dependence phenomena in asset returns. Using the Hursts exponent evaluated by the Local Whittle method as the measure of long-range dependence, evidence is found supporting that while type B shares present strong evidence of the long-range dependence phenomena, type A shares present only weak evidence of such dependence. This result suggests that liquidity and information transmission play a role in explaining results of market efficiency tests.