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Inefficiency of the Brazilian Stock Market: the IBOVESPA Future Contracts

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  • Tarcisio M. Rocha Filho
  • Paulo M. M. Rocha

Abstract

We present some indications of inefficiency of the Brazilian stock market based on the existence of strong long-time cross-correlations with foreign markets and indices. Our results show a strong dependence on foreign markets indices as the S\&P 500 and CAC 40, but not to the Shanghai SSE 180, indicating an intricate interdependence. We also show that the distribution of log-returns of the Brazilian BOVESPA index has a discrete fat tail in the time scale of a day, which is also a deviation of what is expected of an efficient equilibrated market. As a final argument of the inefficiency of the Brazilian stock market, we use a neural network approach to forecast the direction of movement of the value of the IBOVESPA future contracts, with an accuracy allowing financial returns over passive strategies.

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  • Tarcisio M. Rocha Filho & Paulo M. M. Rocha, 2019. "Inefficiency of the Brazilian Stock Market: the IBOVESPA Future Contracts," Papers 1904.09214, arXiv.org.
    • Handle: RePEc:arx:papers:1904.09214
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    References listed on IDEAS

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    1. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
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    3. repec:pri:cepsud:91malkiel is not listed on IDEAS
    4. Bouchaud,Jean-Philippe & Potters,Marc, 2003. "Theory of Financial Risk and Derivative Pricing," Cambridge Books, Cambridge University Press, number 9780521819169, September.
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    6. Lo, Andrew W, 1991. "Long-Term Memory in Stock Market Prices," Econometrica, Econometric Society, vol. 59(5), pages 1279-1313, September.
    7. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
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    10. de Lima, Neílson F. & Fernandes, Leonardo H.S. & Jale, Jader S. & de Mattos Neto, Paulo S.G. & Stošić, Tatijana & Stošić, Borko & Ferreira, Tiago A.E., 2018. "Long-term correlations and cross-correlations in IBovespa and constituent companies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 492(C), pages 1431-1438.
    11. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
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