Determinantes dos custos de transacao no mercado de acoes no Brasil.
| Autor | Zoratto Sanvicente, Antonio |
| Cargo | Artículo en inglés - Costos de transacción |
Determinants of Transactions Costs in the Brazilian Stock Market
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Introduction
In contrast with the assumption of perfect capital markets, the trading of financial assets in secondary markets takes place at a variety of costs, generically called "transactions costs". In turn, the level and the behavior of transactions costs may be seen as indicators of a market's overall degree of efficiency, both in operational and informational terms.
Concerning operating efficiency, one acknowledges the presence of costs we might call explicit; for example, these include the expenses directly charged by brokers (brokerage fees) and the stock exchange itself (exchange fees), any rigidities caused by the processing of order flow, including trading hours, and even taxes, especially those on trading volumes, such as the Tax on Financial Transactions (IOF) and the Contribution on Financial Transactions (CPMF).
In terms of informational efficiency, the most important obstacle to the free trading of financial assets is the possible asymmetry of information between the buyer and the seller of particular asset. Since the transactions costs resulting from information asymmetries are not directly observable, we might characterize them as implicit costs. These result in the over-pricing or the under-pricing of securities. In the former case, a seller demands a premium for trading with a buyer with potentially superior and favorable information. In the latter, the buyer requires a discount for trading with a seller with potentially superior and negative information.
It is reasonable to expect, therefore, that the greater the efficiency with which information is impounded in market prices, the lower would these costs be. Hence, their magnitude may be an important indicator of a market's informational efficiency. Another potential effect of trading itself on prices, leading them away from true values, is Hasbrouck's (1991) "market impact" effect, also attributed by that author as a permanent effect due to the information contained in security trades.
This article's objective, of an essentially empirical nature, is to provide an assessment of total transactions costs in the Brazilian stock market, starting from the adverse selection argument proposed and developed in Glosten & Milgrom (1985), and using the methodology developed and applied by Lesmond et al. (1999) (heretofore referred to as LOT) to estimate the resulting transactions costs.
More specifically, this article presents results from measuring total transactions costs, for individual stocks traded in Brazil in the 1999-2009 period, and the analysis of how such costs are related to individual security and firm characteristics, such as stock liquidity and volatility, the issuer's level of corporate governance, and the measures of the issuing firm's quality, such as size and participation in American Depository Receipts (ADR) programs.
This article contributes to the existing literature on the Brazilian stock market by demonstrating the feasibility of estimating transactions costs directly, with the use of observed prices in the so-called LOT approach. The competing alternative is to use the PIN (probability of informed trading) approach, which, as its name indicates provides estimates of those probabilities, and not rates representing transactions costs.
In addition, the LOT approach can be implemented with much smaller data demands. As this paper indicates, one canuse daily data, which are readily available, instead of having to rely on trade-by-trade data, which are not widely accessible to analysts.
With the technique herein employed, market professionals are able to compare the costs of information asymmetry associated with various firms, thus helping to guide their efforts at collecting additional information on firms for which estimated transactions costs are higher.
In addition to this Introduction, the article is organized as follows. Section 2 presents a review of the literature, with an initial emphasis of the problem's conceptual dimensions; there follows a description of the main empirical results available in the literature, along with the various estimation methodologies proposed. Section 3 describes the method for the estimation of transactions costs based on a logit model. At that point, that methodology is compared with the so-called "probability of informed negotiation (PIN)" approach. Next, section 4 describes the data used, and section 5 presents the results. Section 6 concludes.
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Review of literature
According to Lesmond (2005), the main methods for the estimation of transactions costs in stock markets include those that follow.
The first two types of methods are based on trading volume data, including turnover and the Amihud (2002) measure.
Turnover corresponds to trading intensity, but does not lead to the estimation of a magnitude for a transaction's, which may vary from one stock to another, presumably as a function of different stocks' characteristics. By definition, a stock's turnover is the ratio of physical volume traded and the amount of shares outstanding for each class and firm. A higher turnover would correspond to higher liquidity and, thus, to a lower cost for that liquidity. However, it is an inadequate measure of transactions costs that may include uncertainty as to the security's intrinsic value, in addition to adverse selection measure. At times of crisis, volume and turnover tend to increase exactly when such problems presumably intensify.
In turn, the Amihud (2002) measure uses the ratio between a stock's daily return's absolute value and its daily financial volume of trading. This measure corresponds to the notion of price impact, in the sense that it assesses the reaction of prices to the flow of buy and sell orders. Presumably, the higher the value of that measure, the higher the stock's transactions costs; however, this measure does not result in a cost estimate.
The Roll (1984) measure attempts to infer transactions costs indirectly from price behavior, and not from the volume of trading. It involves the estimation of effective spreads implicit in bid and ask quotes from the negative auto-correlation produced by the bouncing between those quotes. Hence, the higher that autocorrelation, the larger the spread, that is, the implicit transactions cost. Unfortunately, the observed auto-correlations may also be positive, detracting from that measure's validity.
Hasbrouck (1991) uses a systems approach for the representation of price changes, based on autocorrelations and cross-correlations. In other words, a VAR approach is adopted with the goal of extracting the information contained on stock trades. As in LOT, the occurrence of price changes (nonzero returns) is crucial to the analysis, since, in addition to what is referred to as an explicit cost in the present article, the presence of information asymmetries would cause a permanent change in prices.
Such a change is due, along with micro-structural restrictions to trading, to the impact of trading on prices. This has become known as a "market impact factor". Hasbrouck (1991) endeavors to separate transitory from permanent effects and is more concerned with the latter.
One of his results indicates that the impact of information asymmetries is more important for smaller firms. This is an additional justification for testing a hypothesis on the relationship between firm size and transactions costs implicit in price changes. However, Hasbrouck (1991) uses individual transaction data, including data on the quantity traded in each transaction. In the present article, the methodology used does not require that type of more detailed information.
The fifth measure, developed by Lesmond et al. (1999), heretofore referred to as LOT, also uses price behavior information. This is the measure used in the present article, formally described in the next section. To summarize, the LOT measure is able to produce directly a rate as an estimate of transactions costs, including not only the spread charged for information asymmetry and adverse selection, but also the direct brokerage costs and taxes, as well as the possible price impact costs. Hence, this rate combines all types of costs, which are implicit in the prices at which trades take place. As put by Lesmond (2005, p. 424): "LOT... provides an estimate of liquidity encapsulating spread effects, price impact effects, and market depth influences".
Lesmond (2005) analyzes the explanatory power of the various measures described above for 23 emerging stock markets, using as dependent variable a direct measure of transactions costs, namely the observed bid-ask spread. Due to data limitations, that study uses quarterly spreads. The period ranges from 1993 to 2000 and the results point to the superiority of the LOT measure.
In the original application of their methodology, Lesmond et al. (1999) used daily returns of all stocks traded at the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX) in the 1963-1990 period. The authors obtained costs ranging, on average, from 1.2% to 10.3% for firms included in the top and bottom deciles by firm size. These values correspond to round trip costs, that is, purchase plus sale costs in a given transaction. The values were estimated on the basis of daily closing prices. It was also determined that the correlation between their measure of transactions costs and the usual measures, such as the difference between bid and ask quotes, was equal to 0.88.
This means that such a methodology may be considered as a good substitute for market efficiency and micro structure studies when such spreads are not easily known, as is the case in Brazil, in which the use of a market making regime is not dominant.
In LOT...
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