Analysis of the non-linear effect of net equity in the pricing of stock investment funds

• Autor(a) principal: Matos, Paulo Rogerio Faustino
• Data de Publicação: 2012
• Outros Autores: Linhares, Fabricio Carneiro, Sylvestre, Gustavo Zech
• Tipo de documento: Artigo
• Idioma: eng; por
• Título da fonte: BBR. Brazilian Business Review (English edition. Online)
• Texto Completo: http://www.bbronline.com.br/index.php/bbr/article/view/238
• topic: Threshold capital asset pricing model (TCAPM); Stock investment funds in Brazil; net equity; Threshold capital asset pricing model (TCAPM); fundos de investimento em ações no brasil; patrimônio líquido

This paper uses the Capital Asset Pricing Model (CAPM), in its canonic version and with non-linear extensions, aiming at pricing a panel of 75 stock investment funds in Brazil, throughout the last 11 years. The result suggests that the linear version of said framework is not capable of pricing or forecasting actual returns of funds which have high net equity (NE) and outperformance, with respect to the index of the São Paulo Stock Exchange (Ibovespa), corroborating previous evidence. The non-linear version with thresholds based on the NE seems to deal better with the issue of significant Jensen's alphas, although it is statistically indicated only for a few funds with high NE, but low outperformance. This is evidence that, even though size influences the management and, possibly, the performance of a fund, the pricing modeling of such effect should be made linearly.