The Sao Paulo Stock Exchange and the Economic Stabilization

Transcription

1 The Sao Paulo Sock Exchange and he Economc Sablzaon Track: Fnance Key Words: Economc Sablzaon, Sock Exchange Auhor: Wllam Ed Junor Full Professor Fnance Deparmen FGV/EAESP Escola de Admnsração de Empresas de São Paulo (The Sao Paulo Managemen School) Fundação Geúlo Vargas Av. Nove de Julho 2029 São Paulo SP E-mal: Phone: Fax: Elecronc copy avalable a: hp://ssrn.com/absrac=435325

2 The Sao Paulo Sock Exchange and he Economc Sablzaon Absrac: The nflaonary sablzaon recenly observed n Brazl brngs a lo of changes n all aspecs of he counry s economc lfe. In hs work we look a he mpacs on he sock marke, specfcally a Bovespa he São Paulo Sock Exchange. We analyze he leadng varables and sascs ha descrbe Bovespa s behavor, such as volaly and sysemac rsk, comparng he four years precedng and he four years afer 994, when he Real Plan was mplemened. In order o elmnae exogenous nfluences, we use conrol seres made wh nernaonal Sock Exchanges Indexes. The resuls show ha afer 994 here was reduced volaly, ncreased rade volume, reduced effcency of he Bovespa Index and no changes n sysemac rsk. Key Words: Economc Sablzaon, Sock Exchange - Objecves The cenral purpose of hs paper s o analyze he mpacs of he nflaonary sablzaon brough abou afer he nroducon of he Real Plan on Bovespa s markes. Aspecs such as volaly, reurn probably dsrbuon, rade volume, volume per rade, marke effcency and sysemac rsk are a he paper s core. The paper s organzed no fve secons. Ths, he frs one, deals wh he paper s objecves and organzaon. The second secon nroduces he paper s hypoheses, he hrh deals wh he mehodology and daa employed, he forh presen he resuls found, and he ffh nroduces conclusons. 2 - Hypoheses In order o develop he sudy, he followng hypoheses were formulaed and subsequenly esed: H: A drop occurred n asses volaly levels. H2: Changes ook place as regards he dsrbuon of reurn on asses probables. Dsrbuons became closer o normal dsrbuon. H3: There were changes o daly raded volumes and average volume per deal. H3a: Daly raded volumes ncreased. H3b: Average volume per deal dropped. H4: Ibovespa s heorecal porfolo became more effcen as compared o a hypohecal nernaonal porfolo. H5: Asses sysemac rsk dropped afer he sablzaon. 3 Mehodology and daa The purpose of hs sudy s o analyze he effecs of he nflaonary sablzaon promoed by he Real Plan on he behavor of sock exchange radng. In order o do so, we wll analyze he behavor of Ibovespa Bovespa Index n wo perods: n he four years pror o June 30 h, 994, and he four years subsequen o ha dae. In a sudy such as hs, he consrucon of conrol seres s requred so as o enable operang wh he spread beween he analyzed varable and he conrol seres, n such a manner as o perm checkng wheher he analyzed effec akes place n he analyzed marke alone or wheher s a global effec. One of he conrol seres used n hs sudy, and labeled Lan Amercan (LA) seres, s based on he followng Lan Amercan sock exchange raes: Buenos Ares (MERVAL), Sanago de Chle (IPSA) and Mexco Cy (IPYP). Anoher seres, labeled Cenral Markes (CM) wll comprse he raes for he sock exchanges a New York (S&P500), Tokyo (NIKKEY225), Frankfur (DAX), Pars (CAC40) and London (FTSE). Ths wll provde us wh seres wh whch o analyze he reurn and volaly n boh cenral markes (CM) and Lan Amercan ones (LA). These seres wll be bul by weghng each rae wh he relave GDP of each counry n 997, as descrbed below: Conrol seres reurn = r p w p = = GDP daly dáro a counry p' s p m = GDP p DGDP = Counry p' m s Gross r p p= sock exchange on dae Domesc Produc n 997 m = number of counres comprsng he conrol seres All seres, ncludng Ibovespa s, have been adjused o he U.S. Dollar (US$) foregn exchange rae. Wh he Brazlan and conrol seres, furher seres can be bul o ndcae he spread beween he varaon n he Brazlan marke and oher markes. Ths wll gve us he excess changes n he Brazlan marke as compared o oher markes for each of he 2. w p Elecronc copy avalable a: hp://ssrn.com/absrac=435325

3 characerscs addressed. Where hese excesses are sgnfcanly over zero, we wll have an ndcaon of he effecs of sablzaon. In some analyses, he enre egh-year perod wll be dvded no one-year perods o enable denfcaon of changes n he behavor of he several ndcaors over me. In all analyses, excep he ones ha deal wh rade volume, he fgures n pon wll be compued for Ibovespa and he conrol seres. Subsequenly, we wll compue he fgures referred o heren as excesses by subracng from he conrol seres he fgures obaned from he sample asses. The aspecs o be addressed are: 3. Volaly: Two volaly seres wll be bul and esmaed n wo dsnc ways: a) hsorc volaly as descrbed n Hull (998), usng a 2-day wndow: n = 2 observaons P r daly reurn = = ln P r =. r n ( r r ) = n+ σ annualzed = 25. n 25 = number of busness days n one year = n+ P = asse closng prce on dae and b) condonal volaly hrough a Garch-class model as descrbed n Mlls (994). Average and volaly of he excess reurn volaly (reurn on he asse mnus reurn on conrol seres) wll be compued and compared for he perods pror and subsequen o he Real Plan hrough varance comparson F-ess, average volaly dsrbuon comparson -ess, and he spread beween he average of wo dsrbuons, a a 5% sgnfcance level. One-year sub-perods wll also be analyzed. Daly reurns: also as descrbed n Hull (998), compued on ongong bases. 3.2 Daly Traded Fnancal Volume: Averages before and afer he Real Plan wll be compared, as well as he evoluon n sub-perods, hrough -ess o compare average volaly dsrbuons, and hrough he dfference beween he average of wo dsrbuons, a a 5% sgnfcance level. 3.3 Average Volume per Deal: Calculaed as he quoen of fnancal volume raded and he number of deals per radng day. Here, oo, an averages analyss wll be performed by means of -ess o compare average volales dsrbuon, and of he dfference beween he average of wo dsrbuons, a a 5% sgnfcance level. 3.4 Effcency of he IBOVESPA porfolo Consrucon of an effcen froner s requred o evaluae changes n he IBOVESPA porfolo s effcency. Ths effcen froner wll be bul wh raes from sock exchanges he world over, hereby mmckng he effcen froner of a welldversfed nvesor. An effcen porfolo s a porfolo made up of asses wh he leas reurn varance as compared o all oher porfolos wh he same expeced reurn. An effcen froner, n urn, s he unverse of all effcen porfolos, whch can be obaned by means of he followng problem concernng he opmzaon of several expeced reurns (E(Rp)): MnmzeVarance ( Rp) = ( Rp) subjec o condons : E N = x = N = x r = N 2 N = j= x x σ j j 3

4 where Rp s he reurn on porfolo p, N s he number of rsky asses, s he co-varance of he reurn on he -rsk asse and he j-rsk asses, r s he reurn on he j-rsk, and x s he percenage share of asse n porfolo p. We noe ha, n hs case, shor sellng s allowed, as x can be negave. The frs sep o buldng he effcen froner s o esmae average reurns and he varance-co-varance marx for he reurns on he rsky asses, whch, n hs sudy, are he raes for he counres ha make up wha, we have ermed cenral markes. We subsequenly solve he opmzaon problem above usng he daa hus obaned. Huang and Lzenberger (989) have demonsraed ha he effcen froner can be obaned from all convex combnaons of wo effcen porfolos. In hs way, we calculae wo effcen porfolos and subsequenly draw he effcen froner hrough he combnaon of hese by varyng he w proporon of he equaons below: E ( Rq ) = w. E ( R ) + ( w ). E ( Rj ) Varance ( Rq ) = w σ + ( w ) σ j + 2. w.( w ) σ j where Rq s he reurn on porfolo q, R s he reurn on effcen porfolo, s he co-varance of he reurn of porfolos and j, 2 s he varance of he reurn on porfolo. In order o buld an effcen froner where shor sellng of rsky asses s no allowed, we add he followng resrcon o he orgnal opmzaon problem: x 0, =, L, N When shor sellng s resrced, we can no longer use he combnaon of wo effcen porfolos o buld he effcen froner and, herefore, he opmzaon problem mus be repeaed for dfferen expeced reurns (E(Rp)). Once he effcen froners have been bul for he cenral markes, boh wh and whou rsky asses shor-sellng consrans, we calculae he spread beween he Bovespa rae (Ibovespa) and each of he froners. In hs sudy, we chose o use he Eucldan spread: Eucldan Spread = 00. ( Reurn Reurn ) 2 + ( σ ) 2 Ibovespa Froner Ibovespa σ Froner If he spread beween Ibovespa and he effcen froner ncreases from one perod o anoher, we can assume ha Ibovespa became less effcen; f he oppose akes place, we sae ha he rae became more effcen. 3.5 Sysemac Rsk Fnancal leraure proposes wo dsnc ways of measurng sysemac rsk: a) use of dversfcaon analyss b) regresson under he so-called Marke Model. Boh wll be used here. Regardng he former, he average sandard devaon of he asses nvolved n he sudy wll be compared wh he same measuremen for porfolos bul wh dfferen numbers of componen asses. Ths comparson wll be drawn monhly and average fgures wll be compued. I s a noorous fac ha porfolos wh around 5 asses almos compleely elmnae he non-sysemac rsk of asses. Therefore, comparson beween he wo average fgures wll enable observaon of sysemac rsk changes. As regards he use of he Marke Model, he conrol seres made up of he New York (S&P500), Tokyo (NIKKEY225), Frankfur (DAX), Pars (CAC40) and London (FTSE) ndexes wll be used as marke. The regresson below wll be processed wh monhly daa: R = a +β R + ε j, j where R j, s he reurn on asse j a momen and R s he marke s reurn, ha s he reurn on he conrol seres comprsng he ndexes for cenral counres. j s he sysemac-rsk measure o be used for he purposes of comparson. 4 - Resuls 4. Volaly Ibovespa s volaly dropped afer he economc sablzaon. The nex able shows he resuls found when we analyze he hsorc volaly of he excess reurn as compared o Lan Amercan markes and wh cenral markes. Hsorc Volaly Alfa = 5% Drop Years Cenral Markes Lan Amerca 4 4.3% 50.3% 3 4.9% 49.0% % 36.7% 0.0% 6.9% We noe ha, n general, he longer he observaon wndow, he greaer s he observed drop n hsorc volaly. The same apples o he condonal volaly analyss. For example, usng as conrol seres he seres peranng o cenral markes, we noe a 4.3% drop n he Brazlan marke s volaly under he 4-year wndow. The effecs of sablzaon appear o make j 4

5 hemselves fel over longer perods as, when a -year wndow s used, no drop occurs n relaon o cenral markes and he drop as compared o Lan Amerca s slgh. The able below llusraes he analyss of he condonal volaly of excess reurns. A Garch (,) model was used o esmae volaly. Condonal Volaly (GARCH (,)) Alfa = 5% Drop Year Cenral Markes Lan Amerca % 48.2% % 47.0% % 35.2% 0.00% 8.3% The same effec observed n he analyss of hsorc volaly occurs n connecon wh condonal volaly analyss. Agan, we see ha he effecs of sablzaon make hemselves fel over longer me perods. Also n hs case, he volaly drop s greaer wh longer analyss perods. In boh cases, he F-ess o compare pre- and pos-real volaly dsrbuon varances and he -ess performed o compare pre- and pos-real average volaly dsrbuons ndcae sgnfcan resuls a 5% sgnfcance levels. The chars below llusrae excess volaly as compared o Lan Amerca (BOVESPA LA) and Cenral Markes (BOVESPA CM), respecvely. Also, hey perm observaon of he relave reducon of he Brazlan marke s volaly over me..800 BOVESPA - LA BOVESPA LA Volaly /07/ BOVESPA CM Excess Reurn Volaly /07/ The char daed 04/07/994 shows he momen of mplemenaon of he Real Plan and, herefore, he begnnng of nflaon sablzaon n Brazl. We also see, here, a clear drop n excess volaly levels n boh cases afer he Real Plan was nroduced. 4.2 Reurns dsrbuon The es used o denfy he normaly of a seres was he Jarque-Bera es, whch uses he hrd and four momens, skewness and kuross, o denfy devaons from normaly. The sascs obaned have 2 dsrbuon and he dsrbuon s close o normal f a Jarque-Bera sasc under 5.99 s obaned, a a 5% sgnfcance level. The char below ndcaes hs sasc s behavor for excess reurns over me 5

6 CM LA Lnear (LA) Lnear (CM) We noe ha he excess reurns seres, wheher n relaon o Cenral Markes (CM) or Lan Amercan ones (LA) do no, n general, have characerscs conssen wh normal dsrbuon. The one excepon perans o he Lan Amercan seres n 994. All ohers are que dsan from normal dsrbuon. We can, however, noe a rend owards greaer proxmy o normal dsrbuon, represened by he wo lnes found n he char. Reurns n 996 do no allow a very conclusve analyss, as he seres agan become dsan from normaly. In he remanng years however, hs rend can be denfed. The resuls of he Jarque-Bera es can be confrmed by observng he skewness and kuross coeffcens of he excess reurns over me. The chars below ndcae he dsance of expeced fgures from normal dsrbuon a hese momens. Kuross Normal Ds.= 3 CM LA

7 Skewness Normal Ds.= 0 CM LA Daly Traded Fnancal Volume Here, we compare raded volumes convered no U.S. dollars a he R$/US$ exchange rae of he dae n queson pror and subsequenly o he nroducon of he Real Plan. The nex char ndcaes he evoluon of volume n connecon wh he perod under analyss. 450% 4% 400% Average Volume Increase 350% 300% 250% 200% 50% 00% 50% 228% 09% 47% 0% Years Noe ha when he average volume n U.S. Dollars n he four-year pror o he Plan s compared o he volume n he four subsequen years, he ncrease s n excess of 400%. Agan, he ncrease n greaer over me, as when he year pror o mplemenaon of he plan s compared o he year afer ha, growh s lmed o 47%. As regards average volume per deal, he phenomenon s repeaed, wh greaer averages as me advances. The nex char llusraes he phenomenon: 350% 320% 300% Average Increase 250% 200% 50% 00% 209% 3% 50% 38% 0% Years 4.4 Marke Effcency Afer mplemenaon of he Real Plan and he nsallaon of an nflaon envronmen beer algned wh he realy n cenral counres, he Brazlan sock marke became less effcen as compared o a hypohecal porfolo made up of a group of cenral markes raes. The nex char shows ha, boh wh and whou he shor-sellng consran (CM SS = no shor sellng allowed; MC CS = shor-sellng allowed) n he consrucon of effcen froners, Ibovespa became more dsan from he global effcen froner. 7

8 9.0 3% % Pre-Real Pos-Real 00% 6.0 Change 80% Eucldan Spread % 40% Spread Change 2.0 9% 20%.0-0% CM SS CM CS In he case of he shor-sellng consran (MC SS case), he Eucldan spread ncreases by 9%. In he absence of hs consran, he spread ncreased by 3%, showng a loss of effcency by he Brazlan marke as compared o cenral ones. I s also worh nong ha he cenral markes are more effcen han Lan Amercan ones whn he medum varance envronmen. The wo chars below show he effcen froners drawn wh dfferen markes combnaons, he frs one depcng he pre-real perod and he second one n regard o perod afer he mplemenaon. Pre-Real Effcen Froner 2.0% 0.0% Reurn 8.0% 6.0% 4.0% 2.0% 0.0% 0.0% 5.0% 0.0% 5.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% 55.0% 60.0% Rsk (Sandard Dev.) CM+LA+Ibovespa Porfolo CM+LA Porfolo CM Porfolo W/O Shor-Sale CM+Ibovespa Porfolo CM Porfolo w/ Shor-Sale LA+Ibovespa Porfolo LA Porfolo Pos-Real Effcen Froner 2.0% 0.0% 8.0% Reurn 6.0% 4.0% 2.0% 0.0% 0.0% 5.0% 0.0% 5.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% Rsk (Sandard Dev.) CM+LA+Ibovespa Porfolo CM+LA Porfolo CM Porfolo W/O Shor Sale CM+Ibovespa Porfolo CM Porfolo W/ Shor-Sale LA+Ibovespa Porfolo LA Porfolo 8

9 In addon, we also noe ha nseron of Ibovespa no a hypohecal porfolo, be made up of Lan Amercan markes only or of all he markes, makes hese porfolos more effcen afer he Real plan han before. Ths phenomenon s made clear when we analyze, on he chars, he froners for he LA and LA+Ibovespa Porfolos, as well as hose for he CM+LA and CM+LA+Ibovespa Porfolos. The greaer lefward shf of he froners conanng Ibovespa afer he nroducon of he Real Plan s clear. Analyss of he chars also shows anoher neresng resul: global markes became less effcen afer 994. The global froner, made up of all markes (MC+AL+Ibovespa Porfolo) shfed o he lef and down n he char, ndcang ha nvesors ge less reurn for he same level of rsk afer 994. The nex char llusraes hs behavor, showng wo global froners: before and afer July, 994. I clearly shows he froner s downward shf. In hs way, nvesors ge less reurn for a gven rsk level n he perod afer he Real han hey dd prevously. 6.0% 4.0% 2.0% Pre-Real Froner 0.0% 8.0% 6.0% 4.0% Pos-Real Froner 2.0% 0.0% 0.0% 2.0% 4.0% 6.0% 8.0% 0.0% 2.0% 4.0% 4.5 Sysemac Rsk: Dversfcaon The frs procedure used o measure he share sysemac rsk holds n he oal rsk of a ypcal sock n he Brazlan marke was ha of random dversfcaon, as proposed by Evans and Archer (967). Under hs procedure, wo nvesmen porfolos of dfferen szes are bul ad her sandard devaon s compued. As he number of asses n each porfolo ncreases, he effec of dversfcaon s fel, wh he reducon of he sandard devaon. For hs sudy, drawng of los, and for each porfolo sze generaed porfolos comprsng from o 40 socks, 40 porfolos were generaed. The 57 mos lqud socks n he perod ha were sll acve n 997 were used o consruc he porfolos. Monhly reurn on hese was compued for boh wndows: 4 years before and afer he nroducon of he Real Plan. The char below shows he behavor of he porfolos sandard devaon by number of componen sock n he wo perods addressed: pre- and pos-real. 60% 40% 20% Pre Pos 00% Sandard Dev. 80% 60% Pre-Real Sysem Rsk 40% 20% Pos-Real Sysem Rsk 0% Number of Shares n he Porfolo 9

10 Le us make an nal observaon: he general rsk level of asses a Bovespa dropped percepbly afer 994. The sandard devaon of a ypcal sock was 39% before 994 and dropped o 57% aferwards. However, he composon of he oal rsk of socks remaned consan, as llusraed by he nex char. Despe he grea drop n he oal rsk of socks afer 994, he share of oal rsk arbued o sysemac rsk remaned consan, n he vcny of 62%. Sudes such as Solnk s (973) ndcae ha, unlke wha s usually assumed, a greaer sysemac rsk does no have s roos on a counry s economc nsably, bu may relae o he concenraon levels a s marke. Ths concenraon can be analyzed by means of he composon of marke ndexes. In he case of Ibovespa and durng he perod n pon, hs concenraon remaned hgh, jusfyng he seady sysemac rsk level. 60,0% 40,0% 36,3% Pre Pos 20,0% 00,0% 85,7% 80,0% 60,0% 56,7% 62,9% 62,5% 40,0% 35,4% 20,0% 0,0% Dversfed Porfolo rsk Typcal Sock Rsk % Sysem Rsk 4.6 Sysemac Rsk: Marke Model By regressng he monhly reurns on Ibovespa agans he porfolo made up of cenral marke raes n he pre- and pos-real perods, he resuls presened n he able below were obaned: Pre-Real Pos-Real Consan Bea Bea Ibovespa s bea coeffcen relave o he marke dropped remarkably, showng ha, as compared o he oher markes, he Brazlan marke s sysemac rsk was reduced by 44%. Noe ha he beas are sascally sgnfcan n boh perods. The consans, however, a 95%, are no sascally dfferen from zero. If he fgures were sgnfcan, we mgh nfer ha a drasc drop occurred n he rsk-premum offered by he Ibovespa porfolo as compared o hose avalable o nvesors n cenral markes. VI - Conclusons Our core purpose was o pon ou wha effecs he sablzaon of nflaon raes mgh have had on he Brazlan sock marke. The frs concluson s ha sablzaon dd have effecs on he sock marke. In order o analyze hese effecs, we mus revew he paper s nal hypoheses. The able below nroduces he resuls as regards each of hem. Hypohess Resul H A drop occurred n asses volaly levels. Canno be rejeced; we have observed a reducon of boh hsorc and condonal volaly H2 Changes ook place as regards he dsrbuon of reurn on asses probables. Dsrbuons were closer o normal dsrbuon. Canno be rejeced ; dsrbuons are no normal, bu here s a rend owards greaer proxmy o normal dsrbuon H3a Daly raded volumes ncreased Canno be rejeced; daly raded volumes dd ncrease H3b Average volume per deal dropped Rejeced, average daly volume has ncreased H4 Ibovespa s heorecal porfolo became more effcen as compared o a hypohecal nernaonal porfolo Rejeced; IBOVESPA s heorecal porfolo became less effcen relave o he global porfolo 0

11 H5 Asses sysemac rsk dropped afer he Rejeced, sysemac rsk share n socks remaned sablzaon unchanged. Some conclusons arse from he analyss of hese resuls. The frs perans o he oal rsk of Bovespa socks. Afer he Real Plan was nroduced, socks rsk dropped. Economc sablzaon apparenly brngs abou reduced rsk. On he oher hand, he sable share of sysemac rsk relave o oal rsk ndcaes ha he former does no have s roos n macroeconomc nsably bu, raher, n some oher srucural marke facor, such as concenraon. We also noe ha he bea for he Ibovespa porfolo dropped from he pre- o he pos-real perod, ndcang beer algnmen wh he global marke s behavor. Anoher neresng concluson has o do wh he spread from normaly n he behavor of sock reurns. Even hough a rend owards greaer proxmy wh he normal excess reurns dsrbuon was observed, we noe ha he seres under analyss are raher dsan from hs dsrbuon. Snce mos basc economerc procedures assume normaly n seres and hs s no he case here, addonal cauon mus be used n dealng wh fnancal seres. As for fnancal volume, we have observed an ncrease n s absolue U.S. dollar-denomnaed amoun. Some provsos mus be offered. Frs, he fxed foregn exchange rae durng he pos-real perod may have dsored hs resul. Bu even assumng a 00% deprecaon, a grea ncrease n raded volume would have aken place. We sugges new sudes be made o lead o beer undersandng of hs phenomenon. As for average volume per deal, a surprsng observaon was made: unlke our nal hypohess, ndcang a reducon of hs measure, snce we suspeced ha sablzaon would brng abou an ncrease n he number of parcpans n he sock marke, a subsanal ncrease was found, ndcang even greaer concenraon n erms of parcpans n he marke. Anoher neresng resul perans o he reduced effcency of he heorecal Ibovespa porfolo relave o he global one. We mgh suppose ha global markes became more effcen durng he analyzed perod and ha he Ibovespa porfolo underwen no changes. Bu emprcal evdence fals o suppor hs: n fac, oher markes became less effcen, as can be seen from froners analyss n he pre- and pos-real perods. Therefore, he fac s ha he Ibovespa porfolo followed hs drop n effcency, bu more nensely. In hs paper, we sough o observe he effecs of economc sablzaon on he Brazlan varable ncome marke. The use of nernaonal conrol seres enables us o assume ha he effecs of exogenous phenomena have been elmnaed. I s possble, however, ha oher endogenous effecs oher han reduced nflaon levels may have conrbued o he effecs noed here. Oher sudes, akng accoun of effecs such as, say concenraon n fnancal nsuons, he more nense nroducon of foregn nsuons no he Brazlan economy, and ohers, mus be carred ou o more clearly denfy he effecs of nflaon sablzaon on he Brazlan sock marke. 7 - References BLACK, J., BRADLEY, J.F., Essenals Mahemacs for Economss, 2ª Ed, Wley, 994. ERRUNZA, V., LOSQ, E., How Rsky Are Emergng Markes? Journal of Porfolo Managemen, fall, 987, p EVANS, J., ARCHER, S.H., Dversfcaon and he reducon of dsperson: an emprcal analyss, Journal of Fnance, 968. GIACCOTTO, C., SFIRIDIS, J.M., and Hypohess Tesng n Even Sudes: The Case of Varance Changes, Journal of Economc and Busness, v.48, 996, p GRANGER, C.W.J., TERÄSVIRTA, T., Modelng Nonlnear Economc Relaonshps, Oxford Press, 993. HARGIS, K. - The Inernaonalzaon Of Emergng Equy Markes: Domesc Marke Developmen Or Reardaon?, Workng Paper, Souh Carolna Unversy, 996. HARGIS, K., MALONEY, W.F., Emergng Equy Markes: Are They For Real?, Workng Paper, Souh Carolna, 996. HARGIS. K., Tme-Varyng Transmsson Of Prces And Volaly: Lan Amercan Equy Markes , Workng Paper, Souh Carolna, 995. HARVEY, A.C., Tme Seres Models, 2ª ed., Harveser, 993. HUANG, C-F., LITZENBERGER, R.H., Foundaons for Fnancal Economcs, Prence-Hall, Englewood Clffs: New Jersey, 989 HULL, J. C., Inroducon o Fuures and Opons Markes, 3ª ed., Prence Hall, 998. INTERNATIONAL MONETARY FUND - Inernaonal Fnancal Sascs May 2000 JONG, F., KEMNA, A., KLOEK, T., A Conrbuon o Even Sudy Mehodology wh an Applcaon o he Duch Sock Marke., Journal of Bankng and Fnance, v.6, 992, p.-36. MILLS, T.C., The Economerc Modelng of Fnancal Tme Seres, Cambrdge, 994. SEWELL, S.P., STANSELL, S.R, LEE, I., PAN, M.S., Nonlneares In Emergng Foregn Capal Markes, Journal Of Busness, Fnance & Accounng, v.20, n.2, Jan., 993, p SHARPE, W.F., ALEXANDER, G.J., BAILEY, J.V., Invesmens, 5ª ed., Prence Hall, 995. SOLNIK, G., Why no dversfy nernaonally raher han domescally?, Fnancal Analys Journal, July, 974, p In January 999 Brazl has devaluaed he Real. We consder hs a heavy endogenous economc phenomenon wh we canno solae n order o observe he effecs of sablzaon. Tha s why our sample perod ends a December 998.