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Determinants of the Implied Equity Risk Premium in Brazil

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  • Antonio Zoratto Sanvicente
  • Mauricio Rocha Alves de Carvalho

Abstract

This paper tests determinants of the equity risk premium (ERP) in Brazil. We use implied ERP, based on the Elton (1999) critique. ERP for Brazil is calculated as a mean of large samples of individual stock prices in each month in the January, 1995 to November, 2010 period. As determinants of changes in the ERP we obtain, as significant, and in the expected direction: changes in the CDI rate; country debt risk spread; equity market volatility; and US market liquidity premium. The influence of the proposed determining factors is tested with the use of time series regression analysis.

Suggested Citation

  • Antonio Zoratto Sanvicente & Mauricio Rocha Alves de Carvalho, 2012. "Determinants of the Implied Equity Risk Premium in Brazil," Business and Economics Working Papers 154, Unidade de Negocios e Economia, Insper.
    • Handle: RePEc:aap:wpaper:154
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    File URL: https://repositorio.insper.edu.br/handle/11224/5920
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    1. Edwin J. Elton, 1999. "Presidential Address: Expected Return, Realized Return, and Asset Pricing Tests," Journal of Finance, American Finance Association, vol. 54(4), pages 1199-1220, August.
    2. William R. Gebhardt & Charles M. C. Lee & Bhaskaran Swaminathan, 2001. "Toward an Implied Cost of Capital," Journal of Accounting Research, Wiley Blackwell, vol. 39(1), pages 135-176, June.
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