The Long-Run Performance of Brazilian Stocks Traded Below Book Value

L.R. Santos, R.M.S. Montezano
2017 Revista de Gestão, Finanças e Contabilidade  
The price-to-book ratio (stock prices divided by book value per share) is a commonly used a valuation metric to screen for under-or overvalued stocks. Empirical evidence suggests that low price-to-book stocks (i.e., value stocks) outperform high price-to-book stocks (i.e., growth stocks) in the long run. Here we attempt to build on the vast literature on the field by applying a different methodology to Brazilian stocks in the 1989-2009 time period. We build portfolios of stocks traded below
more » ... ks traded below book value and compare results to the more comprehensive Ibovespa index. We found strong evidence in favor of the former. Our portfolios outperformed the Ibovespa by 1425.39 percentage points (cumulative real returns). Moreover, our portfolios seem to be less risky than the Ibovespa, given their outperformance in every state of the economy, and, more importantly, their strong relative results during economic downturns and bear markets. We speculate that the reasons for the superior performance are related to behavioral issues. RESUMO O índice preço/valor patrimonial (preço da ação dividido pelo valor contábil por ação) é uma métrica comumente utilizada para identificar ações sub ou sobrevalorizadas. As evidências empíricas sugerem que ações com baixo preço/valor patrimonial (ações de valor) têm desempenho superior ao de ações com alto preço/valor patrimonial (ações de crescimento) no longo prazo. No presente artigo, busca-se contribuir para a extensa literatura sobre o tema
doi:10.18028/2238-5320/rgfc.v7n1p48-59 fatcat:hfn7ltecqfh67ku6dm5y5qbfsu