Limits to Arbitrage and Value Investing: Evidence from Brazil

44 Pages Posted: 22 Mar 2008 Last revised: 29 Jan 2010

See all articles by Fernando Caio Galdi

Fernando Caio Galdi

Fundacao Instituto Capixaba de Pesquisas em Contabilidade, Economia e Financas (FUCAPE)

Alexsandro Broedel Lopes

Universidade de São Paulo; Manchester Business School

Date Written: January 28, 2009

Abstract

In this paper we show that the results obtained by accounting-based fundamental analysis strategies observed in the US market (Piotroski, 2000 and Mohanram, 2005) cannot be completed extended to other markets. Using Brazil as an experiment, standard tests show the apparent usefulness of financial statement analysis as an effective investment tool. However, additional investigation demonstrates that the significant returns generated by these strategies disappear when properly controlled by limitations on the actions of arbitrageurs. These results contribute to the literature that tries to address the impact of limits to arbitrage on some well reported capital markets phenomena related to financial reporting.

Keywords: limits to arbitrage, value investing, market efficiency, financial accounting, emerging markets

JEL Classification: G14, M41

Suggested Citation

Galdi, Fernando Caio and Broedel Lopes, Alexsandro, Limits to Arbitrage and Value Investing: Evidence from Brazil (January 28, 2009). Available at SSRN: https://ssrn.com/abstract=1099524 or http://dx.doi.org/10.2139/ssrn.1099524

Fernando Caio Galdi (Contact Author)

Fundacao Instituto Capixaba de Pesquisas em Contabilidade, Economia e Financas (FUCAPE) ( email )

Av. Fernando Ferrari, 1358
Vitoria, ES 29075-010
Brazil

HOME PAGE: http://www.fucape.br

Alexsandro Broedel Lopes

Universidade de São Paulo ( email )

Av. Prof. Luciano Gualberto 908
São Paulo, 05508-900
Brazil
+55 11 3091 5820 (Phone)
+55 11 3813 0120 (Fax)

Manchester Business School

Booth Street West
Manchester, M15 6PB
United Kingdom

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