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Brazilian Regulatory Interventions, Volatility and Contagion: A VIRF analysis

Author

Listed:
  • Gabriel Godofredo Fiuza de Bragança

    (Pesquisador do IPEA e professor do IBMEC e FGV)

  • Marcelo de Sales Pessoa

    (Pesquisador do IPEA na área de Economia Financeira desde 1997 na Diretoria de Estudos Marcoeconômicos)

  • Katia Rocha

Abstract

This paper examines how regulatory interventions can affect the market risk of electricity utilities and telecom carriers traded in the Brazilian stock market (BOVESPA). Our article uses a bivariate Generalized AutoRegressive Conditional Heteroskedasticity (GARCH - BEKK) model to analyze the impact of two relevant and surprising measures taken by the correspondent Brazilian regulatory authorities in 2012 (one in each sector) on both markets’ volatilities and covariance. We also adopt the volatility impulse response function (VIRF) developed by Hafner & Herwartz (2006) to estimate their persistence. On the one hand, the results indicate that the effects of the telecommunications’ regulatory intervention are negligible but, on the other hand, the impact of the electricity's regulatory measure is significant, long-lasting and contagious.

Suggested Citation

  • Gabriel Godofredo Fiuza de Bragança & Marcelo de Sales Pessoa & Katia Rocha, 2014. "Brazilian Regulatory Interventions, Volatility and Contagion: A VIRF analysis," Brazilian Review of Finance, Brazilian Society of Finance, vol. 12(3), pages 385-409.
    • Handle: RePEc:brf:journl:v:12:y:2014:i:3:p:385-409
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    More about this item

    Keywords

    Finance; Multivariate GARCH; Regulatory Risk; VIRF;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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