Manuel José da Rocha Armada

Persistence in Portuguese mutual fund performance

Recent evidence suggests that future performance is predictable from past performance, that is, funds with superior (inferior) performance in the past are likely to remain good (bad) performers in the future. This research addresses the persistence of mutual fund performance in a European regional market (the Portuguese equity fund market). Some of the problems in evaluating fund persistence are identified in the context of limited sample size and using the peer group median as a benchmark for contingency table analysis of performance persistence. The criteria for assessing performance persistence based on the contingency table methodology of repeated winners and losers are presented in terms of significance statistics, adjusted for small sample bias. The adjustments are accomplished through the Yates continuity correction and Fishers exact p-value. The appropriateness of each criteria under different circumstances is also discussed. The analysis of the returns of all Portuguese domestic equity funds, since a representative number was established, shows some performance persistence (on a quarterly basis). The persistence, however, is reduced when the returns are controlled for the various dimensions of risk. Significant risk persistence has been documented. Furthermore, for more or less frequent intervals of measurement, the industry persistence is rejected, although individual funds exhibit superior/inferior performance.

Factores determinantes do endividamento: uma análise em painel

In this paper we analyse, for some of the largest Portuguese companies, the relevance and validity of several factors considered in the literature as determinants of companies’ capital structure (represented by the debt ratio): Size, Growth, Business Risk, Profitability, Assets Composition, Non-Debt Tax Shields, Activity Sector and Ownership Control. Using panel data for the period from 1990 to 1995, we present an empirical study in which we seek to describe the effects that these variables have on companies’ debt level in each year of the analysis, trying to identify relationships among the variables, either over time or across companies in the same activity sector. We also analyse the particular effects of each company and each year, that are not included in the explanatory variables of the used models. Although we have reached some results identical to those obtained with other methodologies used at an international level, it is a fact that it did not always happened like that. In our opinion, this was due to the specific characteristics of the companies in our sample and, in general terms, to those of the Portuguese (financial) market.

Optimal Investment Decisions for Two Positioned Firms Competing in a Duopoly Market with Hidden Competitors

This paper extends the literature dealing with the option to invest in a duopoly market for a leader-follower setting. A restrictive assumption embodied in the models in the current literature is that investment opportunities are semi-proprietary in that the two identified or positioned firms are guaranteed to hold at least the followers position. More competition is realistically captured in our model by introducing the concept of hidden rivals so that the places in the market can be taken not only by positioned firm but also by these hidden competitors. The value functions and the optimal triggers for the positioned firms differ materially in settings with(out) the presence of hidden rivals. Unlike existing models, our model allows for (a)symmetric market shares and investment costs for the leader and the follower. Cooperative entrance by the two positioned firms is also modelled.

The long-horizon returns behaviour of the Portuguese stock market1

In the last few years several research studies have challenged the traditional weak-form efficiency tests of the stock market. These studies suggested an alternative to the random walk model, containing temporary and permanent components. If stocks follow such a model then the traditional tests, using returns computed for short intervals would be unable to detect them. To investigate the evidence for such models in the Portuguese stock market ten stock indexes were created. This is a pioneer study of the Portuguese stock market, and uses nominal, real and excess returns, computed for longer horizons. Three methodologies were used: variance ratios, ordinary least squares regressions and weighted least squares regressions. The statistical significance of the results was studied using traditional parametric tests as well as non-parametric tests. The evidence is mixed, as the presence of tendencies towards mean aversion and mean reversion were detected. Results also show that the evidence is very sensitive to the methodology used and the signifcance tests performed. These results, however, do not necessarily reject the weak-form market efficiency hypothesis.

Optimal subsidies and guarantees in public–private partnerships

In this paper, we analyse how certain subsidies and guarantees given to private firms in public–private partnerships should be optimally arranged to promote immediate investment in a real options framework. We show how an investment subsidy, a revenue subsidy, a minimum demand guarantee, and a rescue option could be optimally arranged to induce immediate investment, compensating for the value of the option to defer. These four types of incentives produce significantly different results when we compare the value of the project after the incentive structure is devised and also when we compare the timing of the resulting cash flows.

Capital structure decisions: old issues, new insights from high-tech small- and medium-sized enterprises

Using panel data models and this study analyses the capital structure decisions of high-tech small- and medium-sized enterprises (SMEs) and non-high-tech SMEs. The results suggest that the capital structure decisions of high-tech SMEs are closer to what is predicted by the Pecking Order Theory. However, the results also suggest a modified version of the Pecking Order Theory for high-tech SMEs that have relied on venture capital. These firms prefer equity issues to debt, when internal finance is exhausted. The empirical evidence suggests that problems relating to information asymmetry as well as technological and market uncertainty influence the capital structure decisions of high-tech SMEs.

Behavioral finance: advances in the last decade

As recently as three decades ago, human factors were rarely considered in theoretical and empirical research in finance (Miller, 1986). However, this has gradually changed, especially after the internet bubble at the beginning of the twenty-first century. As part of this new understanding of the importance of human factors, a new field of knowledge has gained prominence: Behavioral Finance, which uses ideas derived from psychology, many of which draw upon the seminal work of Daniel Kahneman, winner of the Nobel Prize in 2002. Behavioral Finance is a growing approach that sparks fertile and innovative field research in finance, with potential for development of new management tools, whether in the area of corporate finance or investments. Since the work of Kahneman (2002), the behavioral approach has provided results that are relevant for assessing the quality of executive decisions (Campelo, 2012, p. 881). In the area of asset pricing, in the last decade, for example, researchers have tried to discover and interpret anomalies in stock returns, such as reactions to news and extreme events (Bange & Miller, 2004; Hwang & Salmon, 2004). Thus, in April 2012, the Observatorio da Inovacao Financeira, a nucleus research of the Escola de Administracao de Empresas de Sao Paulo, Fundacao Getulio Vargas (FGV/EAESP), in partnership with researchers working in Brazil, the United States and Europe, and with the support of the Editorial Board of the RAE-Revista de Administracao de Empresas, issued a call for papers devoted to modern issues in Behavioral Finance. From the methodological point of view, we understand that Behavioral Finance works on three levels: i) experiments with subjects under controlled laboratory conditions; ii) study of financial decisions in the real world, with applications in personal, family, professional and corporate spheres; and iii) the behavior of financial markets. The papers selected for this special issue of RAE cover topics that address all three levels of studies in Behavioral Finance. We received 25 submissions, four were selected. We thank all authors and reviewers, as well as the Editorial Team of the RAE, especially the editor-in-chief Eduardo Diniz, and Eduarda Pereira (Editorial Assistant) for the attention with which they treated the work and the whole manuscript evaluation and improvement process. We are extremely grateful to Professor Hersh Shefrin (University of Santa Clara), who presented his overview of the contemporary literature on Behavioral Finance. We also thank the authors of the book review and recommendations, which complete this special issue.

Can the Wealth-to-Income Ratio be a Useful Predictor in Alternative Finance? Evidence from the Housing Risk Premium

Purpose – The purpose of this chapter is to assess the role of the wealth-to-income ratio in forecasting housing risk premium. Methodology/approach – To investigate this issue, the chapter uses the residuals of the trend relationship among asset wealth and labor income to predict future real housing returns. It shows that deviations of asset wealth from its cointegrating relationship with labor income, wy, track time-variation in expected housing returns. Findings – Using data for a set of industrialized countries, this chapter finds that if agents are hit by a shock that generates a fall in the wealth-to-income ratio, they will demand (i) a higher housing risk premium when housing assets are complements of financial assets and (ii) a lower housing risk premium when housing assets are substitutes of financial assets. Originality/value of chapter – The findings of this chapter are novel in the field of alternative finance and, in particular, durable (housing) finance. Indeed, they build on a representative agents theoretical model to infer about the degree of substitution or complementarity between financial and housing assets, which, in turn, can be useful at developing investment strategies for hedging against the risk of unfavorable housing fluctuations. Additionally, they open a new research avenue for understanding the determinants of housing risk premium by linking the dynamics of asset wealth and labor income with the behavior of future housing returns.

The impact of the Eurozone sovereign debt crisis on bond fund performance persistence: Evidence from a small market

ABSTRACT We evaluate the impact of the Eurozone sovereign debt crisis on the performance and performance persistence of a survivorship bias-free sample of bond funds from a small market, identified as one of the most affected by this event, during the 2001–2012 period. Besides avoiding data mining, we also introduce a methodological innovation in assessing bond fund performance persistence. Our results show that bond funds underperform significantly both during crisis and non-crisis periods. Besides, we find strong evidence of performance persistence, for both short- and longer-term horizons, during non-crisis periods but not during the debt crisis. In this way, the persistence phenomenon in small markets seems to occur only during non-crisis periods and this is valuable information for bond fund investors to exploit.

Testes paramétricos e não-paramétricos de reversão para a média da rendibilidade de índices do mercado accionista

In the last few years several research studies challenged the traditional weak form efficiency tests of the stock market. These studies suggested mean aversion/reversion behaviour of stock market returns. This is a pioneer study of the Portuguese stock market, and uses nominal, real and excess returns, computed for various longer-horizons. The ordinary least square regression methodology was used. The statistical significance of the results was studied using traditional parametric tests as well as non-parametric tests. The non-parametric test does not require the assumption of normality and the use of correction procedures only valid asymptotically, which an advantage is due to the relative small sample size of these studies. The evidence is mixed, as we detected the presence of tendencies towards mean aversion and mean reversion. These results, however, do not necessarily reject the weak form market efficiency hypothesis.