Determinants of the Implied Equity Risk Premium in Brazil

Antonio Zoratto Sanvicente and Mauricio Rocha Alves de Carvalho

No 154, Business and Economics Working Papers from Unidade de Negocios e Economia, Insper

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.

Pages: 17 pages
Date: 2012
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