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Is the CAPM Dead or Alive in the Brazilian Market?

Listed author(s):
  • Yoshino, Joe Akira
  • Santos, Edson Bastos e

The central purpose of this work is to test the Sharpe-Lintner-Black Capital Asset Pricing Model in the Brazilian equity market. We have concluded that the CAPM is dead in the Brazilian equity market because, besides using the market premiums to explain the panel equity premiums, there are also some anomalies, such as, the firm size, the equity price-to-book value, the dividend yield, and the price-earnings ratio. Furthermore, by using the recent panel cointegration FMOLS (fully modified OLS) estimator, this paper corroborates the Fama & French three-factor model (1992, 1993). This work finds also two new three-factor models to explain the local market that satisfy the non-arbitrage condition. These results are important for the purpose of asset pricing and hedging in the Brazilian equity market.

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File URL: http://purl.umn.edu/143224
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Article provided by Review of Applied Economics in its journal Review of Applied Economics.

Volume (Year): 5 (2009)
Issue (Month): 1-2 ()
Pages:

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Handle: RePEc:ags:reapec:143224
Contact details of provider: Web page: http://www.lincoln.ac.nz/story11874.html

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  1. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
  2. Chan, Louis K C & Hamao, Yasushi & Lakonishok, Josef, 1991. " Fundamentals and Stock Returns in Japan," Journal of Finance, American Finance Association, vol. 46(5), pages 1739-1764, December.
  3. Chan, K C & Chen, Nai-Fu, 1988. " An Unconditional Asset-Pricing Test and the Role of Firm Size as an Instrumental Variable for Risk," Journal of Finance, American Finance Association, vol. 43(2), pages 309-325, June.
  4. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
  5. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  6. MacKinlay, A. Craig, 1995. "Multifactor models do not explain deviations from the CAPM," Journal of Financial Economics, Elsevier, vol. 38(1), pages 3-28, May.
  7. Bhandari, Laxmi Chand, 1988. " Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence," Journal of Finance, American Finance Association, vol. 43(2), pages 507-528, June.
  8. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
  9. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
  10. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-1152, September.
  11. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  12. Ball, Ray, 1978. "Anomalies in relationships between securities' yields and yield-surrogates," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 103-126.
  13. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
  14. Black, Fischer, 1972. "Capital Market Equilibrium with Restricted Borrowing," The Journal of Business, University of Chicago Press, vol. 45(3), pages 444-455, July.
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