Samuel Mongrut

In this study, we examine whether behavioral biases matter to portfolio investment. To do so, we analyze the effects of overconfidence, regret, and the mispricing of managers and firms on portfolios’ excess returns. We use a panel data model with monthly observations for 10,625 stocks listed on the NASDAQ electronic market from July 2004 to July 2024. These observations show that all four factors positively affect portfolios’ excess returns. The results indicate that these biases are associated with a market overreaction during stable economic conditions, while regret is mainly linked to return reversals during economic recessions. We also find that investor attention amplifies the overreaction effect in stable periods but has no significant role under economic recessions. These findings indicate that investors should diversify according to both behavioral and financial factors. This diversification may mean that different subsets of investment portfolios underperform relative to the benchmark for a long time, but not to the extent of preventing positive returns under a time-diversification strategy. This study contributes to the literature by being the first to incorporate overconfidence as an investment factor and the first to jointly test these four behavioral biases in the US stock market.

Purpose: We introduce a novel method for comparing the prices and the delta and vega risks for European options by considering Liu’s stock model of uncertainty and the stochastic Black and Scholes model. We aim to reveal the differences between the prices and risks under both approaches. Design/methodology/approach: We develop an uncertainty approach to estimate the Greek letters delta and vega risks and establish two comparison criteria based on order relations and matrix norm metrics. The method is tested through a numerical experiment, incorporating a wide range of experimental and market parameters for strike price and maturity options and expert views for asset volatilities and preference levels. Findings: We find four key facts: prices and risks of European call options differ significantly between the two approaches; uncertain young out-of-the-money call options are costly and riskier than the stochastic counterparts; the expert preference level is more important than the volatility for uncertain call options’ premiums and risks; and these, in turn, are sensitive for young options and across all strike prices. Practical implications: We design a static delta hedging strategy for call options under uncertainty and find that although it is more expensive, it may offer better hedging than the stochastic counterpart. Thus, market hedgers may benefit more from the uncertainty framework rather than the stochastic one. Originality/value: Our findings are summarized in a set of facts that could be considered to develop innovative foundations to support future research in artificial intelligence for financial risk management using the uncertainty theory.

This paper examines the relationship between stock market liquidity and economic growth in five emerging countries: Brazil, Russia, India, China, and South Africa, collectively referred to as the BRICS as of 2017. Using a dynamic panel data model, we find that proxies for stock market liquidity contain leading information about the real economy. Our results are robust even after controlling for macroeconomic covariates that affect both stock market and economic growth. We provide evidence that stock market liquidity contains strong and reliable information about the economic condition of BRICS during the period 2010-2017. Our study sheds light on the fact that stock market liquidity contains prospective news and information about the future state of economic growth.

La presente nota editorial resume las reflexiones efectuadas en el marco del panel titulado “El camino hacia la indexación de las revistas latinoamericanas”, que se realizó el 18 de octubre de 2024 en la ciudad de Arequipa, Perú, como parte de la edición número 59 del Congreso Internacional del Consejo Latinoamericano de Escuelas de Administración (CLADEA). El objetivo es evidenciar la importancia de las revistas académicas latinoamericanas en la difusión del conocimiento científico aplicado a la región, los desafíos que enfrentan para lograr las indexaciones internacionales y las estrategias que permiten superar estos desafíos para convertirse en revistas de alto impacto. Este documento no pretende ser una guía taxativa, sino un espacio de reflexión donde se expongan ideas que, dependiendo de las circunstancias, puedan ser aplicadas por los comités editoriales de las revistas científicas latinoamericanas para orientar y fortalecer su proceso de desarrollo. Presentamos tres puntos que creemos que son relevantes para cubrir esta discusión inicial. El primero aborda la relevancia de las revistas científicas latinoamericanas. El segundo discute los principales desafíos que enfrentan estas revistas académicas. El último punto examina algunas estrategias efectivas para mejorar su posicionamiento en el sistema académico de producción y difusión del conocimiento.

Purpose: The purpose of this paper is to determine the impact of private and public initiatives (financial literacy, entrepreneurship, remote work and government aid) on individual job loss and decrease in income during the COVID-19 pandemic in Peru.Design/methodology/approach: The authors used an unbalanced panel data analysis with the National Household Survey for 2019–2020. The hypotheses are tested with a probit panel data model since the dependent variables are binary.Findings: The study findings indicate that financial preparedness reduced the probability of having a decrease in income, but only to informal workers in metropolitan Lima. Furthermore, entrepreneurship helped mainly female informal workers to reduce their probability of becoming unemployed in metropolitan Lima. Besides, the implementation of remote work as a substitute of face-to-face work was not enough to avoid the decrease in income in the case of informal workers and it was only effective to avoid unemployment in the case of formal workers in metropolitan Lima. Finally, public aid proved to be instrumental in mitigating the decrease in income, but only to informal workers in Metropolitan Lima.Research limitations/implications: The study results only apply for the first year of the pandemic.Practical implications: Policymakers should focus on increasing the financial preparedness of informal workers, especially in provinces.Social implications: Policymakers must expand unemployment benefits, and design public aid programs targeting informal workers in provinces.Originality/value: This is the first study that analyses the impact of private and public initiatives on the decrease in income and unemployment situation of Peruvian individuals during the outbreak of the COVID-19 pandemic.

We study the impact of the adoption of the corporate governance code denominated Country Code (CC), on the dividend payout ratio of non-financial firms that report to the Superintendency of Companies in Colombia. Using an unbalanced panel data model with a sample of 605 companies from 1997 until 2022, we find that companies that adopted voluntarily the Country Code of corporate governance have paid, on average, higher dividends than those that did not. In addition, the impact of the adoption of the Country Code is amplified by its quality, meaning that higher dividend payments are attached to better Corporate Governance quality. We did not find the impact of the two reforms to the Country Code in 2007 and 2014, which implies that these reforms didn’t help companies to distribute more dividends in Colombia.

Purpose: Our findings indicate that workers with more financial education were more prepared to face the negative effects on their finances from COVID. This ability reduces the probability of becoming financially fragile and experiencing financial stress. Design/methodology/approach: The authors applied a survey questionnaire to 856 Colombian adults and used principal component analysis to build an index for each factor. Then, the authors used a linear regression model with the indexes to test our hypotheses and verify our results using a structural equation model. Findings: Our findings indicate that workers who have more financial education are more prepared to face the negative effects on their finances, which reduces the probability of becoming financially fragile and having financial stress. Research limitations/implications: The authors found that there is no significant relationship between financial literacy and financial fragility, neither between financial literacy and financial stress, so a better financial education will not lower financial fragility and stress unless it is being applied by households through better financial preparedness. Practical implications: It is important to highlight that the pandemic not only taught us to improve biosecurity measures but also that financial strength, ability to work remotely and income diversification were key factors in facing this adverse shock, the authors show that high levels of financial education have a positively relationship with the ability of individuals to manage their resources, so private and public institutions have to promote better financial education. Originality/value: This is the first study that applies the four different indexes to an emerging country (i.e. Colombia), and the first one to create and use a financial stress index.

The purpose of this article was to develop a new indicator to estimate the aggregate long-term expected return on stocks. There is not a widely used method to model directly the aggregated expected return of the stock market. Most current methods use indirect approaches. We developed a new indicator that does not need an econometric model to generate expected returns and provides an estimate of the long-term expected returns. The proposed methodology can be used to develop an indicator of future returns of the stock market similar to the yield-to-maturity used for bonds. We used a restricted one-stage constant-growth model - a variant of the residual income model (RIM) - whose main input is the duration of companies’ competitive advantage and cyclical adjusted real return on invested capital (ROIC) with a 10-year average. We used a new methodology to develop an indicator of the long-term expected return on the equity market at the aggregate level, considering the duration of the competitive advantage of companies. Our results showed a strong correlation between the estimated implied return on equity (IRE) of current stock prices and realized returns of the 10-year real total return of the index.

Purpose: This paper aims to identify what are the moderating factors affecting the relationship between firms’ adoption of international financial and reporting standards (IFRS) and the firm’s opacity. Design/methodology/approach: This study uses the meta-analysis methodology from Hunter et al. (1982) to find if the mere IFRS adoption reduces firm’s opacity and a meta-regression from Stanley and Jarrell (1989) to identify the moderating factors that may influence this relationship. Findings: Contrary to previous studies, this study finds a low, negative and nonsignificant correlation between IFRS adoption and firms’ opacity, but this relationship depends on the geographical region. Using 34 results from 28 studies from different continents published between 2005 and 2018 this study finds that IFRS adoption reduces opacity in countries with common law (COML) and with more authorities’ oversight and power to enforce the rules. Originality/value: This study finds two institutional commonalities between different previous studies that intend to assess the impact of the IFRS adoption upon firms’ opacity: the legal system and the authorities’ oversight power.

We derive a mathematical extension of the social discount rate (SDR) in such a way that we can valuate intergenerational startups financed with personal and government funds at the aggregate level. The results imply that the precise determination of the SDR can change the financial priority of investment. Therefore, we recommend government officials to include factors of economic growth (wealth effect), intergenerational prevention (precautionary effect), loss aversion, and the specific risk of the business in the valuation of new ventures and in the estimation of the social discount rate to be more representative of the social utility. Our contribution lies in including a risk premium from the firm’s average non-systematic risk and the loss aversion of a representative investor in estimating the SDR.