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The random walk hypothesis and the behaviour of foreign capital portfolio flows: the Brazilian stock market case

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  • Benjamin Miranda Tabak

Abstract

In this paper the random walk hypothesis is tested for a set of daily Brazilian stock data given by the Sao Paulo Stock Exchange Index (IBOVESPA) in the period of 1986-1998. A rolling variance ratio test for different investment horizons was conducted, and it is concluded that prior to 1994 the random walk hypothesis is rejected but after that it cannot be rejected. Institutionally maturing markets, increasing liquidity and the openness of Brazilian markets for international capital can explain this increase of efficiency of the Brazilian stock market. An error-correction model is used to explain the relationship between the IBOVESPA and foreign portfolio inflows. Evidence suggests that the release of foreign capital control is one of the main determinants of increased efficiency in the Brazilian equity market.

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  • Benjamin Miranda Tabak, 2003. "The random walk hypothesis and the behaviour of foreign capital portfolio flows: the Brazilian stock market case," Applied Financial Economics, Taylor & Francis Journals, vol. 13(5), pages 369-378.
  • Handle: RePEc:taf:apfiec:v:13:y:2003:i:5:p:369-378
    DOI: 10.1080/09603100210134550
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    8. Angelovska Julijana, 2020. "The Impact of Foreigners’ Trades on Equity Prices: Evidence from Macedonian Stock Exchange," South East European Journal of Economics and Business, Sciendo, vol. 15(1), pages 56-65, June.
    9. Al-Faryan, Mamdouh Abdulaziz Saleh & Dockery, Everton, 2020. "Testing for efficiency in the Saudi stock market: does corporate governance change matter?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-30.
    10. Luciana Reis & Roberto Meurer & Sergio Da Silva, 2010. "Stock returns and foreign investment in Brazil," Applied Financial Economics, Taylor & Francis Journals, vol. 20(17), pages 1351-1361.
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    13. Gonçalves, Walter & Eid, William, 2017. "Sophistication and price impact of foreign investors in the Brazilian stock market," Emerging Markets Review, Elsevier, vol. 33(C), pages 102-139.
    14. Eduardo José Araújo Lima & Benjamin Miranda Tabak, 2008. "Exchange Rate Dynamics and the Relationship between the Random Walk Hypothesis and Official Interventions," Working Papers Series 173, Central Bank of Brazil, Research Department.
    15. Hung, Jui-Cheng, 2009. "Deregulation and liberalization of the Chinese stock market and the improvement of market efficiency," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 843-857, August.
    16. Graham Smith & Aneta Dyakova, 2016. "The Relative Predictability of Stock Markets in the Americas," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(2), pages 131-142, April.
    17. Mamdouh Abdulaziz Saleh Al-Faryan & Everton Dockery, 2021. "Testing for efficiency in the Saudi stock market: does corporate governance change matter?," Review of Quantitative Finance and Accounting, Springer, vol. 57(1), pages 61-90, July.
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