Context of behavioral finance: anomalies and efficiency of the Brazilian capital market

Abstract

Analysis of context helps to understand periods of evolution in finance such as Old Finance from 1930 to 1950, Modern Finance from 1950 to 1990 and Behavioral Finance after 1990. The theory and identification of reaction attitudes in capital markets contribute to better comprehension of market capitalization mechanisms. This study sought to understand the environment that favored development of Behavioral Finance and to verify anomalies and the efficiency in Brazilian capital market. In order to contextualize this evolution, volatility of the Dow Jones Index was determined and correlated with indices of important markets worldwide. Numerous Brazilian studies were included in the academic analysis of these anomalies and efficiency. The conclusion was that increased market volatility and globalization favored exaggerated reactions, not supported by investor rational. However the foundation of Modern Finance cannot be overlooked because it helps to explain some aspects of the Brazilian capital market characterized by anomalies as well as efficiency.