Fundamentalist Signals in Volatility Scenarios: Evidence in the Brazilian Stock Market

Bastos, Edson; Bortolon, Patricia; Maia, Vinicius

doi:10.15728/bbr.2020.17.6.2

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Article • BBR, Braz. Bus. Rev. 17 (6) • Nov-Dec 2020 • https://doi.org/10.15728/bbr.2020.17.6.2 copy

Fundamentalist Signals in Volatility Scenarios: Evidence in the Brazilian Stock Market

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

This article investigates whether the usefulness of fundamentalist signals to predict returns are altered in context of high volatility and also considering the sensitivity of assets to the IVol-BR volatility index. In times of high volatility, investors could make their decisions based on risk aversion and not only on the fundamentals signals of companies. In addition, it is possible to see how different delays in fundamentalist signals are related to future returns. The methodological choice is for estimators in panel data for the analysis of non-financial companies that have shares traded on B3 - Brasil, Bolsa, Balcão - in the period from 2011.3Q to 2018.2Q. The results show evidence of changes in the explanatory capacity of fundamentalist signals in different volatility scenarios, and for different sensitivities to IVol-BR. This finding may impact the decision-making of managers and investors as it enables the design of investment strategies based on fundamentalist signals adhering to different risk scenarios.

KEYWORDS
Fundamental analysis; Accounting indicators; Volatility; Fusion methods

Group	Fundamental signal	Expected signal	Referential
Profitability	GM i, q (Gross Margin) It is a standardized difference between the variation in gross margin and the variation in sales, for company i in quarter q.	+	Abarbanell and Bushee (1998Abarbanell, Jeffery S., & Bushee, B. J. (1998). Abnormal Returns to a Fundamental Analysis Strategy. The Accounting Review, 73(1), 19-45. http://www.jstor.org/stable/248340 http://www.jstor.org/stable/248340... ), Malta and Camargos (2016Malta, T. L., & Camargos, M. A. (2016). Variáveis da análise fundamentalista e dinâmica e o retorno acionário de empresas brasileiras entre 2007 e 2014. REGE - Revista de Gestão, 23(1), 52-62. https://doi.org/10.1016/j.rege.2015.09.001 https://doi.org/10.1016/j.rege.2015.09.0... ) and Anderson, Hyun and Yu (2017Anderson, M., Hyun, S., & Yu, D. (2017). Fundamental analysis conditioned on firm life cycle. Working paper. University of Calgary.).
		-	Abarbanell and Bushee (1997Abarbanell, Jeffrey S., & Bushee, B. J. (1997). Fundamental Analysis, Future Earnings, and Stock Prices. Journal of Accounting Research, 35(1), 1-24. https://dx.doi.org/10.2307/2491464 https://dx.doi.org/10.2307/2491464... ).
	CASH i, q the ratio between Cash Flow and total assets, for company i in the quarter q.	+	Bastos, Nakamura, David and Rotta (2009Bastos, D. D., Nakamura, W. T., David, M., & Rotta, U. A. S. (2009). A relação entre o retorno das ações e as métricas de desempenho: evidências empíricas para as companhias abertas no brasil. REGE Revista de Gestão, 16(3), 65-79. https://doi.org/10.5700/issn.2177-8736.rege.2009.36678 https://doi.org/10.5700/issn.2177-8736.r... ), Malacrida (2009Malacrida, M. J. C. (2009). A relevância do lucro líquido versus fluxo de caixa operacional para o mercado de ações brasileiro (Doctoral dissertation, Universidade de São Paulo). https://doi.org/10.11606/T.12.2009.tde-27032009-121238 https://doi.org/10.11606/T.12.2009.tde-2... ) and Lambert (2011Lambert, S. L. (2011). Fundamental Signals, Future Earnings And Security Analysts’ Efficient Use Of Fundamental Signals During 1991 Through 2008. [Doctoral dissertation, The University of Texas]. https://uta-ir.tdl.org/uta-ir/handle/10106/5838 https://uta-ir.tdl.org/uta-ir/handle/101... ), Perobelli, Famá and Sacramento (2016Perobelli, F. F. C., Famá, R., & Sacramento, L. C. (2016). Relações entre Liquidez e Retorno nas Dimensões Contábil e de Mercado no Brasil. Revista Contabilidade & Finanças, 27(71), 259-272. https://doi.org/10.1590/1808-057x201601530 https://doi.org/10.1590/1808-057x2016015... ).
Capital Structure	CAPEX i, q Difference between the CAPEX variation in the sector and the CAPEX variation for company i in quarter q.	+	Wanderley Villaschi, Caio Galdi, and Neris Nossa (2011Wanderley Villaschi, A., Caio Galdi, F., & Neris Nossa, S. (2011). Análise fundamentalista para seleção de uma carteira de investimento em ações com baixa razão book-to-market. BASE - Revista de Administração e Contabilidade da Unisinos, 8(4), 325-337. https://doi.org/10.4013/4426 https://doi.org/10.4013/4426... )
		+	Haryanto and Retnaningrum (2019Haryanto, T., & Retnaningrum, M. (2019). Pengaruh capital expenditure terhadap revenue, number of customer, profit dan return on investment (studi pada perusahaan telekomunikasi yang terdaftar di bei periode 2009-2016).JMM Unram-Unram Management Review, 8(3), 270-279.).
	CHGDEBT AT i, q Changes in the ratio of Total liabilities to total assets, for company i in quarter q.	-	Yan and Zheng (2017Yan, X., & Zheng, L. (2017). Fundamental analysis and the cross-section of stock returns: A data-mining approach.The Review of Financial Studies,30(4), 1382-1423.), Kimmel, Weygandt and Kieso (2005Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2005). Financial Accounting: Tools for Business Decision Making Third Edition (3th edition). Wiley.) e Lambert (2011Lambert, S. L. (2011). Fundamental Signals, Future Earnings And Security Analysts’ Efficient Use Of Fundamental Signals During 1991 Through 2008. [Doctoral dissertation, The University of Texas]. https://uta-ir.tdl.org/uta-ir/handle/10106/5838 https://uta-ir.tdl.org/uta-ir/handle/101... ).
	ETR i, q Effective tax rate, for company i in quarter q.	-	Abarbanell and Bushee (1997Abarbanell, Jeffrey S., & Bushee, B. J. (1997). Fundamental Analysis, Future Earnings, and Stock Prices. Journal of Accounting Research, 35(1), 1-24. https://dx.doi.org/10.2307/2491464 https://dx.doi.org/10.2307/2491464... ) Desai and Dharmapala (2009Desai, M. A., & Dharmapala, D. (2009). Corporate tax avoidance and firm value.The review of Economics and Statistics,91(3), 537-546.) Wahab and Holland (2012Wahab, N. S. A., & Holland, K. (2012). Tax planning, corporate governance and equity value.The British Accounting Review,44(2), 111-124.).
Operational Efficiency	INV i, q (Inventory). Difference between the change in the total monetary amount in inventories (INVTQ) and the amount of sales (SALES), for company i in quarter q.	+	Abarbanell and Bushee (1998Abarbanell, Jeffery S., & Bushee, B. J. (1998). Abnormal Returns to a Fundamental Analysis Strategy. The Accounting Review, 73(1), 19-45. http://www.jstor.org/stable/248340 http://www.jstor.org/stable/248340... ), Thomas and Zhang (2002Thomas, J. K., & Zhang, H. (2002). Inventory changes and future returns.Review of Accounting Studies, 7(2-3), 163-187.). Ball, Gerakos, Linnainmaa and Nikolaev (2016Ball, R., Gerakos, J., Linnainmaa, J. T., & Nikolaev, V. V. (2016). Accruals, Cash Flows, and Operating Profitability in the Cross Section of Stock Returns. Journal of Financial Economics, 121(1):28-45. https://doi.org/10.1016/j.jfineco.2016.03.002 https://doi.org/10.1016/j.jfineco.2016.0... ).
		-	Abarbanell and Bushee (1997Abarbanell, Jeffrey S., & Bushee, B. J. (1997). Fundamental Analysis, Future Earnings, and Stock Prices. Journal of Accounting Research, 35(1), 1-24. https://dx.doi.org/10.2307/2491464 https://dx.doi.org/10.2307/2491464... ).
	ARab i, q (Accounts Receivable). Difference between the variation in receivables (RECT) and the variation in sales (SALES), for company i in quarter q.	-	Abarbanell and Bushee (1998Abarbanell, Jeffery S., & Bushee, B. J. (1998). Abnormal Returns to a Fundamental Analysis Strategy. The Accounting Review, 73(1), 19-45. http://www.jstor.org/stable/248340 http://www.jstor.org/stable/248340... ), Oliveira, Silva, Hernandes Ribeiro (2019Oliveira, R. S. de, Silva, A. F., Hernandes, J., M., & Ribeiro, K. C. de S. (2019). Análise do impacto de recebíveis nos indicadores econômico-financeiro das organizações. Anais do Congresso Brasileiro de Custos. Curitiba, Brasil, XXVI. https://anaiscbc.emnuvens.com.br/anais/article/view/4515 https://anaiscbc.emnuvens.com.br/anais/a... ) and Yan e Zheng (2017Yan, X., & Zheng, L. (2017). Fundamental analysis and the cross-section of stock returns: A data-mining approach.The Review of Financial Studies,30(4), 1382-1423.).
		-	Deloof (2003Deloof, M. (2003). Does Working Capital Management Affect Profitability of Belgian Firms? Journal of Business Finance and Accounting, 30(3-4), 573-588. https://doi.org/10.1111/1468-5957.00008 https://doi.org/10.1111/1468-5957.00008... ),
	SeA i, q (sales and administrative). It is the difference between the variation in sales and the variation in administrative and sales expenses, for company i in quarter q.	+ -	Abarbanell and Bushee (1998Abarbanell, Jeffery S., & Bushee, B. J. (1998). Abnormal Returns to a Fundamental Analysis Strategy. The Accounting Review, 73(1), 19-45. http://www.jstor.org/stable/248340 http://www.jstor.org/stable/248340... ) Anderson, Banker, Huang and Janakiraman (2007Anderson, M., Banker, R., Huang, R., & Janakiraman, S. (2007). Cost behavior and fundamental analysis of SG&A costs.Journal of Accounting, Auditing & Finance,22(1), 1-28.) Yan e Zheng (2017Yan, X., & Zheng, L. (2017). Fundamental analysis and the cross-section of stock returns: A data-mining approach.The Review of Financial Studies,30(4), 1382-1423.).

${R e t}_{i t} = β_{0, i t} + {\sum_{k = 1}^{8} β_{k, i t} x}_{k, i t} + D y_{s e n s .} + D {C h o q u e}_{(-)} + {\sum_{k = 1}^{n} (β_{k, i t} x}_{k, i t} * D {C h o q u e}_{(-)})$
Dependent Variable: Return	(t)	(t-1)	(t-2)	(t)	(t-1)	(t-2)
Dshockneg	-0.030^*	-0.031^*	-0.042^**	-0.028	-0.076^***	-0.058^**
Dshockneg	(0.017)	(0.017)	(0.019)	(0.025)	(0.026)	(0.028)
Arab*Dshockneg				1.813	-1.251	1.138^***
Arab*Dshockneg				(1.125)	(1.586)	(0.412)
CAPEX*Dshockneg				-0.008	-0.009	-0.010
CAPEX*Dshockneg				(0.008)	(0.009)	(0.008)
CASH*Dshockneg				-0.002	0.008	0.038
CASH*Dshockneg				(0.008)	(0.008)	(0.030)
CHG_DEBT*Dshockneg				0.012	0.007	0.002
CHG_DEBT*Dshockneg				(0.008)	(0.008)	(0.009)
ETR*Dshockneg				-0.001	0.016	-0.009
ETR*Dshockneg				(0.007)	(0.015)	(0.014)
GM*Dshockneg				-1.689	-1.970	-2.375^*
GM*Dshockneg				(1.066)	(1.532)	(1.380)
INV*Dshockneg				-0.106	0.034	-0.233
INV*Dshockneg				(0.076)	(0.103)	(0.231)
SeA*Dshockneg				-0.006	0.012	0.090
SeA*Dshockneg				(0.013)	(0.014)	(0.106)
Dummysensi	0.024^***	0.023^***	0.024^***	0.024^***	0.022^***	0.023^***
Dummysensi	(0.008)	(0.008)	(0.008)	(0.008)	(0.008)	(0.008)
ARab	-0.0001	-0.0003	0.003	-0.0001	-0.0004	-1.134^***
ARab	(0.003)	(0.003)	(0.003)	(0.003)	(0.003)	(0.412)
CAPEX	0.002	0.002	0.004	0.004	0.003	0.006
CAPEX	(0.003)	(0.003)	(0.003)	(0.004)	(0.004)	(0.004)
CASH	0.008^**	0.011^***	-0.019^***	0.010	0.004	-0.020^***
CASH	(0.003)	(0.003)	(0.003)	(0.007)	(0.007)	(0.003)
CHG_DEBT	-0.008^**	-0.001	-0.003	-0.01^***	-0.002	-0.002
CHG_DEBT	(0.003)	(0.003)	(0.004)	(0.004)	(0.004)	(0.004)
ETR	-0.001	-0.003	0.003	-0.001	-0.004	0.003
ETR	(0.003)	(0.003)	(0.003)	(0.004)	(0.004)	(0.004)
GM	-0.0001	-0.002	-0.007^*	-0.00004	-0.002	-0.006^*
GM	(0.003)	(0.003)	(0.003)	(0.003)	(0.003)	(0.003)
INV	0.014^***	-0.004	-0.001	0.013	0.039	0.070^***
INV	(0.004)	(0.004)	(0.004)	(0.030)	(0.030)	(0.026)
SeA	-0.003	0.0002	-0.002	-0.003	-0.001	-0.002
SeA	(0.004)	(0.004)	(0.004)	(0.005)	(0.005)	(0.004)
Intercepto	-0.027^**	-0.023^**	-0.025^**	-0.027^**	-0.023^**	-0.041^***
Intercepto	(0.011)	(0.011)	(0.011)	(0.011)	(0.011)	(0.012)
Observations	4,480	4,320	4,160	4,480	4,320	4,160
R² Adjusted	0.007	0.003	0.010	0.006	0.004	0.011
F Statistics	4.027^***	2.543^***	5.269^***	2.643^***	2.108^***	3.754^***

Return		(t)	(t-1)	(t-2)	(t)	(t-1)	(t-2)
		Without interaction			With interaction
Dshockneg	Sensitive		-^*			-^***
Dshockneg	Not sensit
Arab:Dshockneg	Sensitive
Arab:Dshockneg	Not sensit					+**
CAPEX:Dshockneg	Sensitive					-^*	-^*
CAPEX:Dshockneg	Not sensit				+*
CASH:Dshockneg	Sensitive				+^***		+^***
CASH:Dshockneg	Not sensit
CHG_DEBT:Dshockneg	Sensitive
CHG_DEBT:Dshockneg	Not sensit.
ETR:Dshockneg	Sensitive
ETR:Dshockneg	Not sensit.
GM:Dshockneg	Sensitive
GM:Dshockneg	Not sensit
INV:Dshockneg	Sensitive						-^*
INV:Dshockneg	Not sensit
SeAab:Dshockneg	Sensitive
SeAab:Dshockneg	Not sensit.
Arab	Sensitive	-^*			-^*
Arab	Not sensit.
CAPEX	Sensíveis						^+*
CAPEX	Not sensit.
CASH	Sensitive	+^**
CASH	Not sensit		+***	-***			-***
CHG_DEBT	Sensitive	-^***	-^***		-^***	-^**
CHG_DEBT	Not sensit
ETR	Sensitive					-^*
ETR	Not sensit.
GM	Sensitive			-^*			-^*
GM	Not sensit.	-***	-***	-***	-***	-***	-***
INV	Sensitive
INV	Not sensit					+*
SeA	Sensitive
SeA	Not sensit.

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