Mutual-Fund Performance in the Brazilian Stock Market, 1984-1985
ANTONIO ZORATTO SANVICENTE and EVERALDO GUEDES FRANCA
This chapter reports the results of applying an "ex post characteristic curve methodology" ( Sharpe 1981) to evaluate the performance of mutual funds in the Brazilian stock market. More specifically, we have attempted to establish whether certain institutional investors possess superior "security-selection" and "market- timing" abilities. This study is especially important for two main reasons. First, the comparatively limited availability of information on assets traded on Brazilian stock exchanges could make for a less-than-efficient market, conferring cost advantages to larger, institutional investors vis-à-vis smaller, individual investors. Second, it is part of Brazilian stock-market folklore (as elsewhere) that success in that market is possible only when one possesses access to inside information, and that institutions, thanks to their privileged access to the managements of listed firms, do possess that access. In Brazil mutual funds are usually de facto divisions of larger banking conglomerates, with all possible kinds of financial dealings with business firms with listed securities. Thus they are more likely to have access to information that is not available to other investors.
The chapter is organized as follows: In the first section we present a brief outline of the relevant literature, with emphasis on previous attempts at measuring mutual- fund performance in Brazil. Little attention is given to the literature developed in the United States, since that literature is well known. The second section outlines the methodology as well as the tests used. The third section describes the data and gives a short outline of the state of the Brazilian mutual-fund industry in the period covered by the study, that is, 1984 and 1985. In the fourth section we present and discuss the results.