Title: An application of hierarchical linear models to analyse Brazilian financial betas

Authors: Ricardo Goulart Serra

Addresses: Fundação Escola de Comércio Álvares Penteado (FECAP), Av. da Liberdade, 532, Bloco E, 8 andar, 01502-001, São Paulo, SP, Brazil; Instituto de Ensino e Pesquisa (INSPER), Rua Quatá, 300, 04546-042, São Paulo, SP, Brazil

Abstract: It is common to consider that firms from the same industry share a common unlevered beta. This reasoning implies: 1) a nested structure (firms - level 1 - nested in industries - level 2), 2) that unlevered beta variability is concentrated at industry level. I analysed, through hierarchical linear model, 92 Brazilian firms on 31 December 2016. Unlevered betas were calculated with different criteria in terms of: 1) historical period; 2) periodicity of return; 3) market index proxy. I considered two different industry classifications. Results do not favour the common practice as: 1) not all scenarios result in the desired nested structure as well as; 2) the majority of the variability is at firm level (differences in firms from the same industry). As a comparison, I studied 282 North American firms and encountered nested structure in all scenarios but with large variability among firms from the same industry.

Keywords: financial markets; beta; multilevel analysis; HLM; multivariate data analysis; Brazilian firms.

DOI: 10.1504/IJMDA.2018.091849

International Journal of Multivariate Data Analysis, 2018 Vol.1 No.3, pp.218 - 229

Received: 12 Jan 2018
Accepted: 17 Jan 2018

Published online: 08 May 2018 *

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