Political risk, fear, and herding on the Brazilian stock exchange

ABSTRACT

This study analyses beta herding in the Brazilian stock market using a state–space model, controlled by two company groupings: those listed on the market index and those listed on the stock exchange as a whole. The findings revealed high herding in the Brazilian stock exchange, with only small differences between the groupings. Concerning the control variables, we verified that dividend yield, market volatility, SMB and WML factors were significant for both groups, indicating that herding is significant irrespective of those variables behavior

KEYWORDS:

• Beta herding
• state–space model
• fear
• political risk

JEL CLASSIFICATION:

• C31
• G12
• G14

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Similar to VIX. The detailed methodology is in http://www.nefin.com.br/volatility_index.html.

² Calculated as the difference between the annualised 10-year interest rate and the annualised monthly interest rate.

³ For additional details, refer to Bekaert et al. (2014).

⁴ In model (5), we used data from August 2011 to December 2017, due to their availability. Model (5) did not converge for BOLSA.

Additional information

Funding

This work was supported by the Conselho Nacional de Desenvolvimento Científico e Tecnológico [306532/2016-6,408470/2016-0];Fundação Carlos Chagas Filho de Amparo à Pesquisa do Estado do Rio de Janeiro [E-26/202.824/2018.];