O modelo de fama e french é aplicável no Brasil?

Abstract

The three-factor model of Fama and French has been successfully applied in some countries, particularly in the U.S., but its use in Brazil presents some challenges. This paper analyzed the model parameters to verify whether the estimates of the cost of equity capital it offers are reasonable. The sample period was selected aiming at the largest possible stability of the model parameters and included the period after the Real Plan (from July 1995) and ended before the global financial crisis (June 2007). The three factors of the model are the market risk premium (MRP), a high book-to-market value premium, value stocks (HML), and small capitalization stock premium (SMB). The tests indicate that there are premia for value stocks and small companies and that the model has greater explanatory power than the single factor model. However, the historical means of the SMB and HML premia are very high, casting doubt on their ability to generate reasonable estimates to calculate the cost of equity capital of Brazilian companies. The coefficients of the SMB and HML factors showed some instability in the various sub-periods of analysis. The coefficient of the MRP, the beta, was the only one that was significant in all tests and showed more stability. The cost of equity capital was computed with the historical premia means and the coefficients obtained from different periods. The estimates obtained with the single factor model appear to be more reasonable from the financial point of view, than those offered by the three-factor model, whose parameters seem to be problematic for an application in Brazil.