Learning Theory and Equity Valuation: an Empirical Analysis

Antonio Sanvicente () and Renato Teles Delgado ()
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Renato Teles Delgado: Stern Stewart & Company

Brazilian Review of Finance, 2010, vol. 8, issue 2, 113-139

Abstract: This paper tested the Pástor and Veronesi (2003) hypothesis that the market-to-book ratio (M/B) is negatively related to the number of years (age) during which a firm has had its stock traded on an Exchange. The predicted decline takes place as a result of a learning process by investors. The authors tested this implication in the U.S. market using the Fama-MacBeth (1973) methodology. In the present article a more general econometric approach is adopted, with the use of panel data and fixed-factor regressors, with data for stocks traded at the São Paulo Stock Exchange (BOVESPA). The evidence does not reject the Pástor and Veronesi hypothesis. Additional conjectures were tested regarding the learning process. These tests indicate that the greater availability of data on a company amplifies the effect of the age variable on the M/B ratio, implying a more accelerated learning process. This paper concludes that the evidence for the Brazilian market supports the theory that investors learn.

Keywords: learning; finance; efficient markets; equity valuation. (search for similar items in EconPapers)
JEL-codes: C23 G10 G14 M20 (search for similar items in EconPapers)
Date: 2010
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