Brazil Stock Market Risk Factors
We construct long–short portfolios based on various stock characteristics to analyze their returns. Each month, we sort the stocks by median values of each characteristic and form portfolios weighted by market capitalization. In general, we take a long position in stocks with higher intensity of the characteristic and a short position in those with lower intensity. However, for the characteristics of illiquidity, idiosyncratic return volatility, total return volatility, asset growth, and size, we reverse these positions, going short on the higher-intensity stocks and long on the lower-intensity stocks. [link working paper]
In Section 2 we present a histogram of the monthly returns, followed by the cumulative returns in Section 3 and some descriptive statistics in Section 4. In Section 5, we present a description of each characteristic and on the last section we make all of the data available for download. The analysis shown is only for the value-weighted factors (i.e. long-short portfolios) sorted by median, but we also provide the data for the equal-weighted factors and for the portfolios sorted by terciles and quintiles, both value and equal weighted.
For further detail, have a look at the working paper.
1 Monthly return
2 Cummulative return
3 Descriptive statistics
4 Characteristics description
| Characteristic | Definition of the characteristic-based anomaly variable |
|---|---|
| 1 month ret | 1-month cumulative return |
| 12 months ret ex prev month | 11-month cumulative returns ending one month before month end |
| 3 years ret ex prev year | Cumulative returns from months \(t-36\) to \(t-13\) |
| 5 years ret ex prev year | Cumulative returns from months \(t-60\) to \(t-13\) |
| 6 months ret ex prev month | Cumulative returns from months \(t-6\) to \(t-1\) |
| Altman Z-score | Bankruptcy score |
| Asset growth | 3 years asset growth |
| Beta | Estimated market beta from weekly returns and equal weighted market returns for 3 years ending month \(t-1\) with at least 52 weeks of returns |
| BTM | Book value of equity divided by end of fiscal year-end market capitalization |
| Cash flow over assets | Cash flow from operating activities over total assets |
| Earnings to price | Annual income before extraordinary items divided by end of fiscal year market cap |
| Earnings volatility | Standard deviation of last 3 years ROE |
| EBITDA margin | EBITDA Margin |
| Enterprise value | Enterprise value |
| Enterprise value to EBITDA | Enterprise value to EBITDA |
| Gross margin | Gross margin |
| Gross profits over assets | Gross profits over total assets |
| Idiosyncratic ret vol | Standard deviation of residuals of weekly returns on weekly equal weighted market returns for 3 years prior to month end |
| Illiquidity | Average of daily (absolute return / volume) |
| Income to revenue | Net income before extraordinary items over revenue |
| Liabilities to market cap. | Total liabilities divided by fiscal year-end market capitalization |
| Momentum change | Cumulative returns from months \(t-6\) to \(t-1\) minus months \(t-12\) to \(t-7\) |
| Net debt | Net debt |
| Net leverage | Net debt over total assets |
| Ohlson O-score | Bankruptcy score |
| Operating profitability | Revenue minus cost of goods sold - SG&A expense - interest expense, divided by lagged common shareholders’ equity |
| Payout | Equity issuance + debt issuance + payout over profits |
| Price delay | The proportion of variation in weekly returns for 36 months ending in month \(t\) explained by 4 lags of weekly market returns incremental to contemporaneous market return |
| Profitability | Gross profits over assets + ROE + ROA + cash flow over assets + gross margin |
| Quality | Profitability + growth + safety + payout |
| Return volatility | Standard deviation of daily returns from month \(t-1\) |
| Revenue | Revenue |
| ROA | Return on assets |
| ROE | Return on equity |
| Safety | Leverage + O-score + Z-score + Earnings volatility |
| Sales growth | Annual percent change in sales |
| Sales to price | Annual revenue divided by fiscal year-end market capitalization |
| Size | Natural log of market capitalization at end of month \(t-1\) |
| Total leverage | Total debt over total assets |
| Vol of liquidity | Monthly standard deviation of daily trading volume |
| Volume | Natural log of trading volume times price per share from month \(t-2\) |
| \(\Delta\) Cash flow over assets | 3 years cash flow over assets growth |
| \(\Delta\) Gross margin | 3 years gross margin growth |
| \(\Delta\) Gross profits over assets | 3 years gross profits over assets growth |
| \(\Delta\) ROA | 3 years ROA growth |
| \(\Delta\) ROE | 3 years ROE growth |
5 Data download
Data for download is provided below, including the monthly returns of each risk factor and portfolio. Risk factors are the monthly return of the long-short portfolio. In addition to median-sorted, we also build portfolios sorted into terciles and quintiles, applying both equal and value weighting.