Risk in Brazilian stock and futures markets.

摘要

This thesis examines risk in Brazilian financial markets focusing on two questions: (i) Does volatility in emerging stock markets follow the time patterns observed in more traditional markets? and (ii) Can emerging futures markets in LDC's perform their classic functions of hedge provision and price discovery when operating under suboptimal conditions---high and unstable inflation, interventions in the spot market, restrictive regulation on capital flows among others? The first issue is addressed within a conditional volatility framework by explicitly modeling the time-varying nature of the second moments in the return distribution of the Sao Paulo Stock exchange's index (Ibovespa) between 1971 and 1992. Besides realized volatility estimates, different models suggested by the ARCH methodology (Generalized ARCH, Integrated GARCH and Exponential GARCH) are estimated. The resulting panorama is very different than observed for traditional markets: volatility mainly driven by domestic economy wide factors in particular inflation rates, relatively low persistence of shocks to volatility, unconditional volatility higher from 1985 on and systematically lower in the month of July, non-significant asymmetry/leverage effects and exchange rate risk relevant only around major devaluation episodes. As in traditional markets, a large portion of volatility fluctuations remains to be explained. As for volatility forecasting, the best model is a GARCH(1,1) augmented by inflation rates and a July dummy, which generates conservative but reasonably reliable estimates for the time-varying standard deviations. The second issue is addressed by looking at the inter temporal structure of futures prices. Specifically, the presence of pure arbitrage opportunities and time-to-maturity dependent risk premium in Brazilian financial futures markets in the early 90s is investigated. The theoretical reference is a no arbitrage futures price derived from an application of Cox, Ingersoll and Ross (1985) derivative asset pricing differential equation. This framework is attractive since it results in a futures price similar to traditional cost-of-carry models under the null of no mispricing/no risk premium but it allows for expansion of the alternative hypothesis into two separate components: a pure arbitrage opportunity term and a time-to-maturity dependent risk premium. The evidence for both IBOVESPA stock index futures and US dollar futures rates in Brazil indicates the absence of arbitrage opportunities and a downward bias which vanishes as maturity approaches. This evidence is compatible with the US experience thus supporting an affirmative answer to the second question.