Carlos Heitor Campani

Fundamental Indexation in Brazil: a competitive strategy?

Purpose – This article analyzes fundamental indexation in Brazil relative to the IBrX 100 and selected stock funds in the period between June 2003 and May 2015. This strategy relies on weights based on fundamental indicators and not on market prices. Design/methodology/approach – Fundamental indices built with the IBrX 100 stocks were weighted according to fundamental indicators. The fundamental weighting method sets the weight of each stock as proportional to a previously determined fundament value. This article also considers an ordinal weighting. Findings – The results indicate that fundamental indices do not display positive and statistically significant returns and alphas after adjusting a five risk factor model and transaction costs. The ordinal weighting suggests that fundamental indicator outliers do not drive results. The evidence also suggests that fundamental indices might perform better in bear markets. Originality/value – In general, fundamental indices behave like value stocks and do not present abnormal returns. This is consistent with the absence of fundamental index products in the Brazilian market.

Fundos de previdência privada: passividade a preços de fundos ativos

From 2005 to 2015, the total assets managed by open private pension funds increased more than six times in Brazil, where the Free Bene t Generating Plan (PGBL) and the Free Bene t Generating Life (VGBL) represent 90% of these assets. However, private pension institutions are characterized by the collection of high management fees, thus keeping for themselves much of the bene ts o ered by the government as incentive for investment in this modality. High management fees are justi ed only when there is active management of these funds, theoretically generating higher performance: this study indicates that this is not the case in this market segment. Similar problems have been faced in other countries, such as the United Kingdom, Denmark, and Sweden, which led investigation concerning funds that charge high management fees for active management, while they actually provide management that may be regarded as passive. is demonstrates the scale and relevance of this issue, which has been surveyed and addressed by this study. To do this, dynamic style analysis was performed, through rolling regressions, followed by Kalman lter analysis in funds from the topve private pension institutions in Brazil. Analyzing the exposure evolution of these funds to various asset classes and the R2 generated, passivity traces were found, mainly in composite variable income funds. Such funds are precisely those that should be more actively managed, as they charge the highest management fees. is article also demonstrates it is possible to build a passive portfolio, having a very similar style and returns without statistically signi cant di erences, but at a lower management fee (and aligned with passive funds).

Cash Risk Arbitrage

This study explores volatility smiles when stock market information is lagged, specifically in the REIT industry. A usual requirement is that REITs can only disseminate information relating to their property valuations once per year; therefore, this leads to the lagging effect. Within the context of exchange options (i.e. mergers), it seems that no study has researched on this theme. This article uses the Black & Scholes model to calculate implied volatilities and their corresponding implied options to illustrate arbitrage opportunities when exchange options emerge. The results illustrate that implied volatilities are different from non-implied volatilities. Further, arbitrage is still higher among REITs as opposed to other capital market instruments. Finally, just like other capital market instruments, REIT acquisitions generate alpha.

Growth Options Computation

This article models mergers as exchange options where acquirers offer stocks and/or cash to target firms in exchange of acquiring some shareholding in target firms. Mergers analysed in this article happen between homogeneous entities. The B-S and Margrabe models are used to price cash and stocks (including stocks and cash) deals respectively. The M&A traits are grouped as conflict of interest, market growth, funding and specialisation. Regression results illustrate that exchange options react to M&A characteristics differently. Thus, the results are beneficial to both sell-and buy-side investors in terms on how one manages merging firms. The goodness of fit suggests that strategic acquisitions played important roles.