Expected Return, Firm Fundamentals, and Aggregate Systemic Risk: An Analysis for the Brazilian Market using an Accounting-Based Valuation Model

Karina da Silva Carvalho Mikosz, Marcos Roberto Gois de Oliveira Macedo, Carolina Magda da Silva Roma


Purpose – This paper examines the ability of Lyle, Callen, and Elliott's (2013) valuation accounting model in estimating expected returns (cost of capital) in the Brazilian capital market.

Design/methodology/approach – To test the model's ability to generate expected returns (cost of capital), as well as to predict prices, Fama-Macbeth's (1973) monthly cross-sectional regressions were used. Sensitivity to different risk factors, particularly to the whole (systematic) economy risk, was also tested to forecast returns using a two-stage approach.

Findings – The results showed that even under different conditions, the accounting model evaluated has unsatisfactory performance with emerging country data, during the analysis period. Moreover, the sensitivity of return to the risk factors employed was not a determinant for the forecasts. However, the findings showed consistency for price forecasting, and the evidence was consistent with the work applied in the American market.

Originality/value – For the Brazilian case, the model failed to capture the dynamics of asset returns, showing that the capital market under analysis has its own characteristics and requires a methodology that considers this.


Accounting model. Expected return. Risk factors.

DOI: https://doi.org/10.7819/rbgn.v22i2.4056

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