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What are the risk factors relevant to investors? Evidence from the Brazilian Funds Market

Author

Listed:
  • Rodrigo De-Losso
  • Elias Cavalcante Filho, José Carlos de Souza Santos

Abstract

This article investigates what determines the flow of funds to investment funds. Brazilian Investors are more aware of market risk (beta) when evaluating funds, while tending to attribute the return of factors such as size, value, momentum, illiquidity and industry risk to alpha. Using measures of variation in the sophistication of investors, it is also noted that more sophisticated investors tend to value funds based on more complex criteria. The result is in line with that observed for the US. Additionally, one observes that less sophisticated investors prove to be more sensitive to all past return metrics; however, by decomposing the bottom alphas into persistent component and random component, it is evident that this sensitivity is concentrated on the random alpha component.

Suggested Citation

  • Rodrigo De-Losso & Elias Cavalcante Filho, José Carlos de Souza Santos, 2019. "What are the risk factors relevant to investors? Evidence from the Brazilian Funds Market," Working Papers, Department of Economics 2019_52, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2019wpecon52
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    More about this item

    Keywords

    Mutual funds; performance measures; factor models;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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