Stochastic Discount Factor in the Brazilian Equity Market (Fator de Desconto Estocástico no Mercado Acionário Brasileiro) (Portuguese)
Revista Estudos Econômicos, São Paulo, 36(3): 435-463, jul-set 200
29 Pages Posted: 12 Sep 2010 Last revised: 15 Sep 2010
Date Written: September 11, 2006
Abstract
This article implements the minimum variance frontier for the stochastic discount factor, according to both Hansen and Jagannathan (1991) and Cochrane and Hansen (1992), for the Brazilian stock market. Two approaches are considered in terms of equity returns and equity premium, respectively, the Equity Premium Puzzle and the Low Interest Rate Puzzle. Furthermore, we apply also the econometric test of Burnside (1994) in these approaches. The criteria based on equity return results in an invalid discount factor. On the other hand, the approach using the equity premium, according to Cochrane and Hansen (1992), does not reject the discount factor. Thus, we do not corroborate these two puzzles for the Brazilian equity market. In fact, the equity premium puzzle has to satisfy both criterias above. Thus, in these sense this puzzle does not happen in the Brazilian stock market.
Note: Downloadable document is in Portuguese.
Keywords: Risk premium, asset pricing, market risk, equity premium risk, low interest rate puzzle, risk aversion, Arrow
JEL Classification: D91, E2, E60, G0, G11, G12, G13, H2, H55
Suggested Citation: Suggested Citation