Returns Predictability and Stock Market Efficiency in Brazil

Abstract

This paper searches for evidence of predictability in the Brazilian stock market using portfolios grouped by sector and firm size with data from 1999 to 2008. I conduct an automatic variance ratio test using wild bootstrap. This methodology eliminates the arbitrary choice of the holding period as well as improves small sample properties. The results suggest (i) stocks from the industrial sector are highly predictable, (ii) stocks from small firms tend to be more predictable than the ones from large firms, (iii) the Brazilian stock market, measured by the Ibovespa index from 1986 to 2008, shows an increase of efficiency since 1994.

Keywords

• Predictability
• Efficient markets
• Random walk
• Variance ratio
• Bootstrap