Analysis of the non-linear effect of net equity in the pricing of stock investment funds

Paulo Rogerio Faustino Matos, Fabrício Carneiro Linhares and Gustavo Zech Sylvestre
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Paulo Rogerio Faustino Matos: Federal University of Ceará
Fabrício Carneiro Linhares: Federal University of Ceará
Gustavo Zech Sylvestre: Federal University of Ceará

Brazilian Business Review, 2012, vol. 9, issue 4, 1-26

Abstract: This paper uses the Capital Asset Pricing Model (CAPM), in its canonic version and with nonlinear extensions, aiming at pricing a panel of 75 stock investment funds in Brazil, throughout the last 11 years. The result suggests that the linear version of said framework is not capable of pricing or forecasting actual returns of funds which have high net equity (NE) and outperformance, with respect to the index of the São Paulo Stock Exchange (Ibovespa), corroborating previous evidence. The non-linear version with thresholds based on the NE seems to deal better with the issue of significant Jensen's alphas, although it is statistically indicated only for a few funds with high NE, but low outperformance. This is evidence that, even though size influences the management and, possibly, the performance of a fund, the pricing modeling of such effect should be made linearly.

Keywords: Threshold capital asset pricing model (TCAPM); Stock investment funds in Brazil; net equity. (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:bbz:fcpbbr:v:9:y:2012:i:4:p:1-26

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