Ibovespa market efficiency analysis: A quantile autoregressive model approach

Abstract

Dependency on financial asset returns has received considerable attention in the finance literature in order to assist in the formulation of strategies of expected positive return and portfolio risk management. However, the market efficiency hypothesis assumes that new information is immediately incorporated to the asset and that the dependency among the returns is null or not significant. Based on this idea, this research aims to analyze the behavior of serial dependence of stock returns of the Ibovespa using the quantile autoregression model (QAR). Daily log-returns of the Bovespa Index from January 2, 2008 to June 13, 2012 have been used. The results indicate that the extreme qua ntiles are associated with positive or negative returns and have a strong and distinct dependence on each other. The dependence of central quantiles is close to zero and similar to the model of ordinary least squares (OLS). The study also identified an asymmetric effect of investors, which was associated with the market state and the location in the quantile. Besides, high past positive or negative autoregressive coefficients lead to future coefficients of the same sign. It is clear, therefore, that the Ibovespa behaves differently from the assumptions of the hypothesis of market efficiency in the weak form.

Keywords: quantile autoregression model, market efficiency, dependence.