TITLE:
Conditional CAPM Using Expected Returns of Brazilian Sustainability Companies
AUTHORS:
Elmo Tambosi Filho
KEYWORDS:
Conditional CAPM, Financial Markets, Portfolio
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.3,
February
12,
2018
ABSTRACT: In the
last decades, CAPM model has been of great interest in the scientific scene.
Despite all the criticism, the improvement of the static CAPM, which has
generated new dynamic models, provided investors with stronger guarantee
through financial transactions. The CAPM and its static version were and are
still very important in the financial scene. Nowadays, more sophisticated
adaptations of the CAPM are found, which allow us to explain some matters in
finance that had remained unqualified for a couple of time. Considering such
discussion about the CAPM validity, this study aims to create a basis for
reflection upon the conditional model, comparing it with the static one. In
order to verify such facts, tests of conditional models are examined (with beta
varying throughout the exercise), something uncommonly studied in the
literature. Such tests are suitable to incorporate variances and covariance
that change at long run. Methodological wise, the study tested the conditional
CAPM model borrowing a leaf from Jagannathan and Wang using macroeconomics and
financial variables from the Brazilian sustainability Companies. Based on our findings, there is
evidence that the conditional CAPM of Jagannathan and Wang for the
North American market is perfectly applicable to the Brazilian sustainability Companies.