Title: The Sao Paulo Stock Exchange: a multilevel analysis of firm and industry effects on profitability evolution and hedge strategies

Authors: Luiz Paulo Lopes Favero

Addresses: School of Economics, Business and Accounting, University of Sao Paulo, Av. Prof. Luciano Gualberto, 908 – FEA 3, Cidade Universitaria, Sao Paulo – SP 05508-900, Brazil

Abstract: Literature has not reached a consensus on how the firm and industry effects influence the stock price performance of publicly-traded companies over time. Based on the premise of significant changes in the stock price performance of companies listed on Sao Paulo Stock Exchange (Bovespa) in recent years, and the occurrence of these variations in function of the characteristics of each firm and activity industry, this study uses hierarchical modelling with repeated measures to propose an approach that permits analysing random effects as an alternative for profitability evolution analysis. Through a sample of 45 companies working in ten industries during an eight-year period (2001-2008), totalling 317 observations, low representativeness of the activity industry is verified to distinguish the mean annual profitability and the growth rates of stock prices among companies listed on Bovespa in recent years.

Keywords: hedge strategy; hierarchical linear modelling; firm effect; industry effect; Sao Paulo Stock Exchange; stock price performance; Bovespa; profitability evolution; hedging investments.

DOI: 10.1504/IJFMD.2010.034241

International Journal of Financial Markets and Derivatives, 2010 Vol.1 No.3, pp.307 - 325

Published online: 30 Jul 2010 *

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