Window dressing em fundos de investimentos no Brasil

Abstract

This paper investigates the presence of Window Dressing in the Brazilian investment fund market, focusing on equity funds. Window Dressing is a practice that consists of disclosure a portfolio composition to the market, different from that maintained by the fund in the reporting period. Just before the end of the period, fund managers change their positions with the sole purpose of presenting safer, more profitable papers or both. Considering the presence of Window Dressing, the market may signal distorted results to investors and guide their allocation in direction of funds they would not invest in the absence of such practices. Moreover, the adoption of Window Dressing may increase transaction costs and thus destroy value. We believe that there is a lack of empirical evidence on this topic in Brazil. Thus, our paper proposes an empirical study to verify the presence of Window Dressing from 2010 to 2016. We adopt Market Model Residuals, Rank Gap and Backward Holding Return Gap empirical strategies to show evidences of Window Dressing in investment funds. Our results are related to previous literature by O'Neal (2001), Ng and Wang (2004), Bremer and Kato (1996) and Ortiz, Sarto, Vicente (2010) and Agarwal, Gay and Ling (2014). In a nutshell, we find consistent results for Window Dressing in funds managed by small companies, and funds managed by small companies, losers against IBOVESPA and which presented high Tracking Error in the period.