Anomalies in the Brazilian Capital Market: A Study on the Size and Book-to-Market Effects from the Fundamentalist Approach Perspective

Rebeca Cordeiro da Cunha Araújo, Márcio André Veras Machado, Vinícius Gomes Martins


This paper aims to analyze the size and book-to-market (B/M) effects in the Brazilian capital market from the fundamentalist approach perspective. Specifically, we sought to verify whether alternative measures of company size play the same role of market value, and if alternative measures of future cash flows play the same role of B/M in the explanation of stock returns. The population included all the firms listed at B3 (Brasil, Bolsa, Balcão) from December 1995 to December 2016. The data were analyzed based on the methodology proposed by Ohlson and Bilinski (2015) and estimated by quantile regression. The results indicate the existence of the size effect in the Brazilian capital market, since the four measures used were negative and statistically related to the stock returns. This fact contrasts the perspective of the fundamentalist approach, once the size effect, in the analyzed period, has as a characteristic a market anomaly rather than as an intrinsic relationship between the proxy for market value and stock return. As for the book-to-market effect, the results also do not support the arguments of the fundamentalist approach, once the book value not reinforced the market value, so not representing the expected variation in future cash flows of Brazilian shares. That is, it has not been possible to identify which alternative proxies for future cash flows form quotients with the market value as good as the B/M in the explanation of stock returns.


Anomalies; Size Effect; Book-to-Market Effect; Fundamentalist Approach.

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