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Learning Theory and Equity Valuation: an Empirical Analysis

Author

Listed:
  • Antonio Zoratto Sanvicente

    (Insper Instituto de Ensino e Pesquisa)

  • Renato Teles Delgado

    (Stern Stewart & Company)

Abstract

This paper tested the Pástor and Veronesi (2003) hypothesis that the market-to-book ratio (M/B) is negatively related to the number of years (age) during which a firm has had its stock traded on an Exchange. The predicted decline takes place as a result of a learning process by investors. The authors tested this implication in the U.S. market using the Fama-MacBeth (1973) methodology. In the present article a more general econometric approach is adopted, with the use of panel data and fixed-factor regressors, with data for stocks traded at the São Paulo Stock Exchange (BOVESPA). The evidence does not reject the Pástor and Veronesi hypothesis. Additional conjectures were tested regarding the learning process. These tests indicate that the greater availability of data on a company amplifies the effect of the age variable on the M/B ratio, implying a more accelerated learning process. This paper concludes that the evidence for the Brazilian market supports the theory that investors learn.

Suggested Citation

  • Antonio Zoratto Sanvicente & Renato Teles Delgado, 2010. "Learning Theory and Equity Valuation: an Empirical Analysis," Brazilian Review of Finance, Brazilian Society of Finance, vol. 8(2), pages 113-139.
    • Handle: RePEc:brf:journl:v:8:y:2010:i:2:p:113-139
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    learning; finance; efficient markets; equity valuation.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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