Luis Berggrun

Persistence in Equity Fund Performance in Brazil

We examine performance persistence in the large and growing Brazilian equity fund market from 2000 to 2012. We find a significant risk-adjusted spread between a portfolio of top- and bottom-performing funds, which supports the idea that performance persists. This spread remains after controlling for market, size, distress, and momentum risk factors and tends to be larger and more significant for a set of small and retail funds. The spread is mostly driven by the underperformance of the bottom decile of funds, which is consistent with the existence of some fund managers with insufficient skills to recover investment costs.

Gestión de riesgos financieros. Experiencia en un banco latinoamericano

El presente documento busca presentar los principales conceptos de riesgos financieros presentes en la banca; en particular, se trabajara el caso de un banco peruano, considerando aspectos tales como la gestion de riesgos, Basilea III y la crisis economica internacional. El caso se desarrolla en el primer semestre del 2012 en el mercado peruano

Momentum in the Colombian Stock Market

ABSTRACT This article analyzes performance of momentum portfolios under different settings and in terms of raw and risk-adjusted returns after the local stock exchanges in Colombia merged in 2001. We found little evidence of significant momentum returns in the post-merger period. Zero risk-adjusted returns remained after estimating two pricing models. Similar results held in a pre-financial crisis period, considering a higher data frequency or a different number of portfolios. We attribute our findings to increased access to issuers and investors and greater information dissemination in the post-merger period, which overall have made profiting from studying historical price patterns more difficult.

Capital Markets and Firm Performance in Emerging Economies

It is well known that the basic characteristics of emerging markets include a high degree of ownership concentration and illiquid capital markets, and good corporate governance practices are not widespread among companies. This special symposium section is dedicated to further deepen our knowledge of how firms and investors in emerging economies behave in the face of changes in economic and institutional environment. This issue becomes even more relevant because institutional investors in emerging markets now are very important players. For instance, they trade around 70% of the daily market capitalization in Latin American emerging markets, so it is important to better understand the reactions of listed companies and investors due to external changes. Policy makers and regulators are also interested to see the potential reaction and consequences of changes already in place, such as the Latin American Integrated Market (MILA), in order to evaluate the effects of integration on economic activity, This special symposium section includes 10 papers selected based on a thorough review process. In the first paper, Rapp and Udoieva focus on the impact of ownership structures and shareholder’s rights protection on research and development (R&D) outlays. In their cross-country study that includes firms from 24 emerging countries, they find that a more dilute ownership and a greater presence of institutional investor positively affect R&D intensity. This positive effect is enhanced in countries with greater investor protection. An interesting question in the development of Latin American emerging economies is what drives mergers and acquisitions (M&A) in these markets. Cortés, Durán, Gaitán, and Vasco examine this issue and conclude that in emerging markets with available capital, transnational M&A activities do not prosper because companies, operating in Latin America, usually expand their operations through international takeovers. However, industry productivity and high standards of corporate governance in Latin American companies attract transnational M&A activity from companies based on Organization for Economic Cooperation and Development (OECD) countries into the Latin American region. The Latin American Integrated Market (or MILA for its Spanish acronym) started its operations in 2011 and currently includes four markets: Colombia, Chile, Mexico, and Peru. A current issue in the MILA is the harmonization of tax rates for capital gains and dividends, because tax rates are an important determinant of the market value of companies. In the third paper, Vélez-Pareja finds that personal taxes on dividend gains in fact destroy more value than we used to think, based on Miller’s (1977) approach. Hence, it is extremely important to consider the full harmonization of tax rates in the MILA. The fourth paper of the special symposium section, by Feng, Lin, and Wan, discusses the impact of foreign direct investment (FDI) and short-term capital investment on stock and real estate prices in China. A positive shock on net capital inflows positively and contemporaneously affects both housing and stock prices, while an increase in FDI does not have an impact on stock prices but contributes to home price appreciation with some delay.

Illiquidity Premium in the MILA

ABSTRACT This article analyzes the illiquidity premium in the MILA. Using seven proxies for illiquidity, we find a positive and significant illiquidity premium for our sample. A microstructure bias-free portfolio weighting based on past returns is critical in our finding of an illiquidity premium, which is robust to several methodological changes in our portfolio simulations. We also document that the premium is present only in small and high book-to-market stocks. Nonetheless, when we control for size and distress effects, the difference and significance in risk-adjusted returns between portfolios of high and low illiquidity stocks remains.

Corporate Governance Index in Emerging Markets: Peruvian Listed Companies

Abstract Companies are wishing to incorporate good corporate governance practices into their organization in order to be more attractive to investors, knowing whether this influences their financial indicators and profitability or not. This, in fact, is beneficial for investors so they know that a company who applies the principles of corporate governance (CG) presents best management practices and transparent information, safeguarding the interests of all its stakeholders, which helps their investment decision; reducing market uncertainty, making it more efficient and liquid. The research focuses on the companies listed in the Stock Exchange of Lima that had implemented CG strategies in their organizations.