MACROECONOMIC RISK FACTORS AND SHARE RETURNS
Name: YURI TRANCOSO COSTA
Publication date: 03/07/2019
Advisor:
Name |
Role |
|---|---|
| CLÁUDIO MÁRCIO PEREIRA DA CUNHA | Advisor * |
Examining board:
| Name |
Role |
|---|---|
| ALFREDO SARLO NETO | Internal Examiner * |
| CLÁUDIO MÁRCIO PEREIRA DA CUNHA | Advisor * |
Summary: This work evaluates if exchange rate and interest are relevant risk factors in explaining stock
returns. The empirical analysis is conducted with a sample of shares of Brazilian companies
traded at BOVESPA, between 2001 and 2018. The risk factors considered are represented by
arbitrage portfolios purchased in shares that are exposed to the factors and sold in neutral
stocks. Exposure to risk factors is assessed by the partial correlation of the returns of test
portfolios with the returns of these arbitrage portfolios. To evaluate the relevance of proposed
risk factors for stock pricing, firstly I estimate these partial correlations (betas). In a second
stage, I evaluate whether there is a relationship between these coefficients (betas) and the
expected returns in the cross section of test portfolios. The results show that foreign exchange
and interest are relevant risk factors in explaining stock returns in Brazil. We also conclude
that, in general, the model proposed from macroeconomic risk factors in this work is more
explanatory for the Brazilian stock returns than the CAPM and Fama & French 3 Factor model.
However, the Carhart 4 Factor model was the most explanatory among all, due to the risk
factor (WML). The model proposed here, however, is more parcimoniious (one fator less), and
based on finance theory, not in empirical anomalies.
