Abstract
This study, based on Ahmed’s (2017) work for the US market, examines whether the prices of shares traded on the stock market of a developing country, such as Brazil, can also be influenced by noise traders who make their decisions based on irrelevant information. Using data from the Brazilian stock market between Jan/2003 and Sep/2018 we show that irrelevant firm characteristics are associated with variations in capital gains overhang (CGO), a proxy for the disposition effect bias. Our results are quite similar to those found by Ahmed (2017) for the US. However, the two markets show different results for the relationship between CGO and market liquidity and systematic risk for the entire sample period. Also, we find that there is an inverse relationship between investor sentiment and CGO at times of market upward movement. Overall, the influence of variables considered irrelevant was confirmed in robustness checks. These results may imply that noise traders evaluate stocks and companies based on their irrelevant characteristics, and this behavior, which is not compensated for by rational investors, temporarily influences the market by generating price distortions like the disposition effect.
© 2018, Facultad de Contaduría y Administración, Universidad Nacional Autónoma de México. All rights reserved. Publication of the article implies full assignment of property rights (copyright) in Journal of Contaduría y Administración. The publication mreserves the right to total or partial reproduction of the work in other print, electronic or any other alternative means, but always recognizing its responsibility.
License for Published Content
Unless otherwise stated, all contents of the electronic edition of the journal are distributed under a license and distribution "Creative Commons Attribution-Noncommercial 4.0 International" (CC-by). You can see from here the version of the license information. This circumstance must be expressly stated in this way when necessary.
Metadata License
The metadata of papers published by Contaduría y Administración are in the public domain, through the publisher's waiver of all rights to the work under copyright law worldwide, including all rights and related rights, to the extent permitted by law. You may copy, modify, and distribute the metadata, even for commercial purposes, without requesting permission.
