Brazilian Regulatory Interventions, Volatility and Contagion: A VIRF analysis

Gabriel Godofredo Fiuza de Bragança (gabriel.fiuza@ipea.gov.br), Marcelo de Sales Pessoa (marcelo.pessoa@ipea.gov.br) and Katia Rocha (katia.rocha@ipea.gov.br)
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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

Brazilian Review of Finance, 2014, vol. 12, issue 3, 385-409

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.

Keywords: Finance; Multivariate GARCH; Regulatory Risk; VIRF (search for similar items in EconPapers)
JEL-codes: C32 G11 G12 L94 L96 L98 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:12:y:2014:i:3:p:385-409

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