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Is the Brazilian Stock Market Efficient? A Stochastic Dominance Approach

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  • Gustav Carl Skroder
  • Raphael Moses Roquete

Abstract

Knowing if the stock market is efficient is important for investors, policymakers, researchers, and society as a whole, as it impacts investment strategies, capital allocation, market integrity, policy decisions, risk management, and economic efficiency. While Mean-Variance analysis has been a cornerstone of modern portfolio theory, stochastic dominance offers a complementary approach that better captures investor preferences taking behavioral considerations into account. This paper aims to provide a new outlook on the efficiency of the Brazilian stock market, using a different approach from the commonly used Mean-Variance analysis. We present evidence of the Brazilian stock market efficiency tests using data from the Bovespa Index (iBovespa) spot and futures, with maturity dates in 2, 4, and 6 months, using two different approaches: Mean-Variance (MV) and Stochastic Dominance (SD). The results show that the Brazilian stock market presents inefficiencies and the iBovespa spot is dominant over its futures. A robustness check corroborates our main findings that investors choosing the spot over the future will gain more utility when making this investment choice.

Suggested Citation

  • Gustav Carl Skroder & Raphael Moses Roquete, 2026. "Is the Brazilian Stock Market Efficient? A Stochastic Dominance Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 62(5), pages 1447-1458, April.
    • Handle: RePEc:mes:emfitr:v:62:y:2026:i:5:p:1447-1458
    DOI: 10.1080/1540496X.2025.2559934
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