Analyzing An Alternative Model To The Capm For Brazilian Publicly-Traded Companies

Abstract

This paper aims to analyze an alternative model to the standardly applied CAPM, by testing if the following economic and financial determinants can also be a good way to forecast the stock expected return for the Brazilian publicly-traded companies: 1) income elasticity of demand; 2) degree of operating leverage; 3) degree of financial leverage; 4) the six types of balance sheets, according to the Dynamic Model; 5) and the interest rate elasticity of demand. After running fifteen linear regression models with different combinations of the suggested determinants, the results indicated that interest rate elasticity of demand was the best determinant to calculate the annual stock return for the Brazilian publicly traded companies (from 2010-2019), compared to the other four determinants.