Financial integration and the cost of capital : a study of the brazilian equity market
Autor(a) principal: | |
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Data de Publicação: | 2015 |
Outros Autores: | |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Institucional da UFRGS |
Texto Completo: | http://hdl.handle.net/10183/205459 |
Resumo: | This study analyzes the effect of financial integration on the cost of equity capital of Brazilian listed firms. According to the relevant literature, foreign capital flows are expected to increase stock returns, the so-called revaluation effect. For standard valuation models, higher stock prices imply a lower cost of equity capital, as expected returns fall as stock prices rise. Two analyses are conducted: first, a statistical analysis based on a partial general equilibrium model as suggested by Henry (2003) and Stulz (1999) provides insights that the cost of equity capital in Brazil reduced following the integration with the Global equity market in the period between 1996 and 2013, as expected returns decreased over time. In the second part of the study, a regression analysis is conducted, by estimating the effect of foreign portfolio capital flows on the Brazilian stock market returns using a Global CAPM with an additional parameter for foreign portfolio capital flows. The results of the regression analysis provide evidence that foreign portfolio capital flows are associated to an increase in excess returns on the Brazilian stock market (after controlling for systematic risk). Also, in a second regression estimated between the dividend yield (a direct measure of the cost of equity) and net foreign portfolio capitals, the partial effect of net foreign capitals on the Dividend Yield was negative. These findings are in line with the revaluation effect hypothesis and also support the argument that financial globalization reduces the cost of capital for a previously segmented equity market. |
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Loncan, Tiago RodriguesCaldeira, João Frois2020-02-06T04:17:04Z20151916-971Xhttp://hdl.handle.net/10183/205459000992564This study analyzes the effect of financial integration on the cost of equity capital of Brazilian listed firms. According to the relevant literature, foreign capital flows are expected to increase stock returns, the so-called revaluation effect. For standard valuation models, higher stock prices imply a lower cost of equity capital, as expected returns fall as stock prices rise. Two analyses are conducted: first, a statistical analysis based on a partial general equilibrium model as suggested by Henry (2003) and Stulz (1999) provides insights that the cost of equity capital in Brazil reduced following the integration with the Global equity market in the period between 1996 and 2013, as expected returns decreased over time. In the second part of the study, a regression analysis is conducted, by estimating the effect of foreign portfolio capital flows on the Brazilian stock market returns using a Global CAPM with an additional parameter for foreign portfolio capital flows. The results of the regression analysis provide evidence that foreign portfolio capital flows are associated to an increase in excess returns on the Brazilian stock market (after controlling for systematic risk). Also, in a second regression estimated between the dividend yield (a direct measure of the cost of equity) and net foreign portfolio capitals, the partial effect of net foreign capitals on the Dividend Yield was negative. These findings are in line with the revaluation effect hypothesis and also support the argument that financial globalization reduces the cost of capital for a previously segmented equity market.application/pdfengInternational Journal of Economics and Finance. Toronto, Canada. Vol. 7, n. 3 (2015), p. 45-56Integração financeiraCustoCapitalBrasilFinancial integrationForeign portfolio capital flowsCost of equity capitalGlobal CAPMFinancial integration and the cost of capital : a study of the brazilian equity marketEstrangeiroinfo:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/openAccessreponame:Repositório Institucional da UFRGSinstname:Universidade Federal do Rio Grande do Sul (UFRGS)instacron:UFRGSTEXT000992564.pdf.txt000992564.pdf.txtExtracted Texttext/plain49092http://www.lume.ufrgs.br/bitstream/10183/205459/2/000992564.pdf.txt09e301923680d78dad6b2b91eb5b33f7MD52ORIGINAL000992564.pdfTexto completo (inglês)application/pdf198024http://www.lume.ufrgs.br/bitstream/10183/205459/1/000992564.pdf0e12355948bf5bfec7d67449eeb876bdMD5110183/2054592020-02-07 05:14:40.490135oai:www.lume.ufrgs.br:10183/205459Repositório de PublicaçõesPUBhttps://lume.ufrgs.br/oai/requestopendoar:2020-02-07T07:14:40Repositório Institucional da UFRGS - Universidade Federal do Rio Grande do Sul (UFRGS)false |
dc.title.pt_BR.fl_str_mv |
Financial integration and the cost of capital : a study of the brazilian equity market |
title |
Financial integration and the cost of capital : a study of the brazilian equity market |
spellingShingle |
Financial integration and the cost of capital : a study of the brazilian equity market Loncan, Tiago Rodrigues Integração financeira Custo Capital Brasil Financial integration Foreign portfolio capital flows Cost of equity capital Global CAPM |
title_short |
Financial integration and the cost of capital : a study of the brazilian equity market |
title_full |
Financial integration and the cost of capital : a study of the brazilian equity market |
title_fullStr |
Financial integration and the cost of capital : a study of the brazilian equity market |
title_full_unstemmed |
Financial integration and the cost of capital : a study of the brazilian equity market |
title_sort |
Financial integration and the cost of capital : a study of the brazilian equity market |
author |
Loncan, Tiago Rodrigues |
author_facet |
Loncan, Tiago Rodrigues Caldeira, João Frois |
author_role |
author |
author2 |
Caldeira, João Frois |
author2_role |
author |
dc.contributor.author.fl_str_mv |
Loncan, Tiago Rodrigues Caldeira, João Frois |
dc.subject.por.fl_str_mv |
Integração financeira Custo Capital Brasil |
topic |
Integração financeira Custo Capital Brasil Financial integration Foreign portfolio capital flows Cost of equity capital Global CAPM |
dc.subject.eng.fl_str_mv |
Financial integration Foreign portfolio capital flows Cost of equity capital Global CAPM |
description |
This study analyzes the effect of financial integration on the cost of equity capital of Brazilian listed firms. According to the relevant literature, foreign capital flows are expected to increase stock returns, the so-called revaluation effect. For standard valuation models, higher stock prices imply a lower cost of equity capital, as expected returns fall as stock prices rise. Two analyses are conducted: first, a statistical analysis based on a partial general equilibrium model as suggested by Henry (2003) and Stulz (1999) provides insights that the cost of equity capital in Brazil reduced following the integration with the Global equity market in the period between 1996 and 2013, as expected returns decreased over time. In the second part of the study, a regression analysis is conducted, by estimating the effect of foreign portfolio capital flows on the Brazilian stock market returns using a Global CAPM with an additional parameter for foreign portfolio capital flows. The results of the regression analysis provide evidence that foreign portfolio capital flows are associated to an increase in excess returns on the Brazilian stock market (after controlling for systematic risk). Also, in a second regression estimated between the dividend yield (a direct measure of the cost of equity) and net foreign portfolio capitals, the partial effect of net foreign capitals on the Dividend Yield was negative. These findings are in line with the revaluation effect hypothesis and also support the argument that financial globalization reduces the cost of capital for a previously segmented equity market. |
publishDate |
2015 |
dc.date.issued.fl_str_mv |
2015 |
dc.date.accessioned.fl_str_mv |
2020-02-06T04:17:04Z |
dc.type.driver.fl_str_mv |
Estrangeiro info:eu-repo/semantics/article |
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info:eu-repo/semantics/publishedVersion |
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article |
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publishedVersion |
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http://hdl.handle.net/10183/205459 |
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1916-971X |
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000992564 |
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http://hdl.handle.net/10183/205459 |
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eng |
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eng |
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International Journal of Economics and Finance. Toronto, Canada. Vol. 7, n. 3 (2015), p. 45-56 |
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info:eu-repo/semantics/openAccess |
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openAccess |
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