ANALYSIS OF OVERREACTION AND UNDEREACTION IN ASSETS OF THE FIRST AND SECOND LINE OF BRAZILIAN STOCK MARKET

Abstract

The Efficient Market Hypothesis states that asset prices fully reflect all available information. The Behavioral Finance are developed to the extent that anomalies are perceived in so-called efficient markets. The aim of this research was to identify the existence of under-reaction and over- reaction, as well as see if there symmetry in the assets of the first and second line, in the Brazilian stock market. The work so far as it contributes to not only tests the existence of such heuristics also checks whether these active unlike influence of different capitalizations.To this end, it was generated a Fuzzy Behavioral model obtaining clusters for each assets to test the existence of biases. The sample was composed of 132 assets, and 59 of the first line and 73 of the second line with data from 2004 to 2011. It was observed that among the first line assets, the bias of over- reaction were focused on the financial crisis period, while in other periods there was only moments of under-reaction. Among the second line, met again significant of behavioral biases, but with a opposite character. While in 2005 and 2007 were respectively over-reaction and under-reaction in the assets of the second line, the opposite was observed in the first. The results suggest momentary deviations in the process of formation of rational expectations, generating short-term deviations from the hypothesis of market efficiency when tested in a semi-strong form. It was noted yet, opposing heuristics in equivalents time windows, demonstrating that the first and second line assets have not symmetrical behavioral effects.