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Portfolio Based on Dividend Payout Or Technical Analysis Based on MACD? ISSN: 2278-3369 International Journal of Advances in Management and Economics Available online at: www.managementjournal.info RESEARCH ARTICLE Stock Market in Brazil: Portfolio based on Dividend Payout or Technical Analysis Based on MACD? Braga, Robson1,4, De Sousa, Edmilson P.1,4, Brugni, Talles V.1,2,3*, 1 Accounting Department at University of São Paulo (USP), Brazil. 2 Accounting and Stock Markets at University of São Paulo (USP). 3 Accounting and Stock Markets at Federal University of Espírito Santo (UFES). 4 State University of Bahia (UNEB), Brazil. *Corresponding Author: Email: [email protected] Abstract We identify the difference in return between a portfolio of the Ten Brazilian Companies that pay more dividends and results of investment decisions using a technical analysis indicator, the Moving Average Convergence- Divergence (MACD). Our goal was to verify whether, in the period 2008-2013, the results of the buy and hold strategy for earnings per dividend outweigh or not the speculative behavior of using technical analysis. We found evidence that decision focused on dividends are gainful. Average earnings were well above of those obtained by using the MACD, a relationship of 121.23% against 38.24%. We have identified that the results are greater when comparing the gains that would be obtained if the shares were bought at the beginning of the period and sold at the end (average of 97.54 percent). MACD results were higher than those that provided the main Brazilian stock index, the IBOVESPA, which in the period showed negative performance. Keywords: Returns, Dividends, MACD. Introduction In General, regardless of the time you keep your investors, or on the seeking for faster gains and investments, the goal of every investor is to obtain with high volume of operations. Anyone seeking the best gains in order to maximize your wealth. to make investments can be faced with the However, it is common to have a distinct rank challenge of predicting the movement of prices in among those who seek to achieve that goal in the the market [5] short term in comparison with those who seek in the long term. Graham [4] states that speculation is different from investment, because investment is done One of the elements that distinguish investors is through evaluation, which aims at obtaining the time by which they intend to keep the asset in return with some security, while speculation their investment portfolios [1]. In spite of the fact would be exempt from most accurate analysis and that all investing is considered "investors", those could refer to emotional or irrational decisions, who make investments with the intention of such as those identified in the work of Tomaselli keeping them for short deadlines, and seek quick and Oltramari [6]. gains, are referred to as speculators [2]. Given that, the capital market is considered too According to Kanitz [3] the term speculator refers risky [7]; some investors seek to invest their to the person who can see the future or see beyond resources in lower-risk assets, such as fixed what others see. Then, in the context of stock income. On the capital market a strategy would market speculator would be the investor who can be to invest in assets with regular dividend anticipate market movements and profit in times payment history [4], which generate longitudinal of market fluctuation [4]. gains, and are sustained by the regularity of companies in generating positive results. Be focused on the seeking for consistent gains over a longer time interval, like long-term Brugni, Talles V et. al| May-June 2015 | Vol.4 | Issue 3 |105-114 105 Available Online at www.managementjournal.Info For some, the consistency of a company in operations in home broker. Jordan and Diltz [15] remunerate its investors with regular and verified active operations in the stock market consistent payments of dividends or other during times of high volatility. MACD-based proceeds, as interest on net equity, meets the researches were performed by Fernandes-Blanco demands of long-term gains and investors seek to et al.[10], Chong, Li and Yu [16], Vidotto et al. tailor their investments to dividend policy of [17], Eric et al. [12], Marques and Gomes [18]. companies in which choose to invest [8]. However, these studies did not examine the relationship between the operational strategies Others believe that should seek to find the timing based on the MACD in comparison with of buying and selling, so you get fast gains, with investment decisions focused on dividends. Thus, the difference between the acquisition price and the present study brings contributions to the liquidation of an investment, in the shortest time, literature of investment strategies, especially in as does the speculators [4]. the Brazilian market. Theoretical Framework Among investors who make short-term investments is common the use of techniques and Investments in Stocks statistical evaluations, called technical or graphic The financial market brings together the so-called analysis. According to Assaf Neto [9], technical or surplus and deficit agents, who seek to transact in graphical analysis establishes projections about order to allocate their resources, as investors, the behavior of stock prices from observed borrowers or lenders resources. The capital patterns in past market performance. The market, as part of this context, aims to allow technical indicators aims to assist investors in firms to financial funding at lower cost and allows interpreting trend in prices and decision-making investors to promote alternative savings about shares [10]. allocation [19]. Among the technical indicators used in graphical The process of selection of investments by analysis, we can mention the moving averages companies houses a decision-making dilemma for that are used in studies of pricing trend trackers investors. Portfolio theory, advocated by like Moving Average Convergence-Divergence Markowitz [20] suggests that the relationship (MACD) [11]. The MACD is based on differences between risk and return is weighted to the between exponential moving averages of certain process of formation of an investment portfolio, periods to identify moments of buying and selling suggesting diversification as a strategy to be of an asset, based on verification of high or low adopted. This portfolio should take into account trend. the return on assets, theoretically risk-free, to Research Question and Goals consider the Capital Asset Pricing Model (CAPM) to valuation of assets, as proposed by Sharpe [21]. MACD is used as an instrument that seeks to These are fundamentals that investors can optimize the operations of investment in the stock consider in selecting investments, and the use of market [12]. In addition, MACD is one of the their own analytical criteria. indicators used by software and platforms of operations with stocks [10], in an automated way With the objective of assisting in this process and [13], being recommended for supporting decisions pointing coherent analytical criteria, two schools on short-term operations based on technical of decision analysis are presented to investors: the analysis. fundamentalist and graphic technique, or as some prefer to call, which are not mutually exclusive Thereby, there are two strategies of investment [22]. decisions: (a) investment in companies with a history of good dividend payments; and (b) by To Penman [23], the decisions of buying and using technical indicators. From these two selling of an asset observe the relationship strategies of stock investment decisions, the between the price of the asset and the value that present study aims to answer the following the buyer sees behind the fundamentals of this research question: The return on investment asset, which is obtained by the study of based on the use of the technical indicator MACD information about companies. The process of outperforms the investment strategy focused on access and study of information can differentiate dividends in the Brazilian capital market? investors in the market, and even generate more or less informed investors, the so-called In previous work, Barber and down the Dean [14] informational asymmetry [24, 25]. studied investment decisions made through Brugni, Talles V et. al| May-June 2015 | Vol.4 | Issue 3 |105-114 106 Available Online at www.managementjournal.Info The fundamental analysis considers the with the construction of trend lines, e.g. support usefulness of financial information for prediction and resistance, denoting points of disruption of of results and profits [26]. This kind of analysis historical pricing barriers [13]. evaluates variables both internal and external to the company, which exert influence on its Graphics describe fluctuations in shares price and performance and, consequently, about the trends in stock prices, in order to identify the best intrinsic value of their shares. The main subsidies opportunities for transactions [9]. Stock market of this criterion of analysis are the financial operations can be performed based on studies of statements of the company and the various data graphics with very different time intervals and and information relating to the economic sector of can be so short that can be performed on the same activity, the stock market and the economic day, as the so-called day trade operations, or conditions. Armed with this set of information, negotiations of a day [15]. quantitative and financial models are applied with the goal of relating the decisions to buy or Investors who operate with this short-term sell stocks with its market value [9]. strategy are commonly called speculators. According to Kanitz [3], the operations of this type Chong, Li and Yu [16] state that technical are very risky and investors ' success lies in the analysis involves the study of historical prices to ability to properly use the tools techniques and predict the future movement of prices and note their ability to see beyond what others see, in that the use of moving averages is one of the main order to obtain better earnings.
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