Foreign portfolio capital flows and stock returns : a study of Brazilian listed firms

Loncan, Tiago Rodrigues and Caldeira, João Frois (2015) Foreign portfolio capital flows and stock returns : a study of Brazilian listed firms. Estudos Economicos, 45 (4). pp. 859-895. ISSN 1980-5357 (

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This study analyzed the effect of foreign portfolio capital flows on stock returns of Brazilianlisted firms through a 6-factors APT model, in which an additional risk factor for foreign portfolio capital flows was included. First, an aggregate analysis was conducted. The partial effect of foreign portfolio capital flows on the IBOVESPA index’s returns was statistically significant and positive. Next, a disaggregate analysis was also implemented, in which portfolios of stocks were sorted by sector of economic activity, level of risk and level of corporate governance. Foreign portfolio capitals caused increases in returns especially for sectors related to commodities, industry and cyclical consumption. For the portfolios sorted by risk (in which the stocks’ betas were used as a risk parameter for sorting), foreign capitals increased the returns of mid-high and high beta portfolios, but decreased the returns of low and low-mid beta portfolios. For corporate governance portfolios, the firms listed on the Novo Mercado segment (according to BMF and Bovespa criteria) experienced a statistically significant revaluation effect. Overall, the results of the study provide support to the revaluation effect hypothesis.


Loncan, Tiago Rodrigues ORCID logoORCID: and Caldeira, João Frois;