FAMA & FRENCH FIVE-FACTOR MODEL AND THE RISK OF ECONOMIC UNCERTAINTY IN THE BRAZILIAN STOCK MARKET

Abstract

This paper aims to propose and test a model to evaluate the influence of economic policy uncertainty on the Brazilian stock market based on the theoretical framework present in Fama & French Five-Factor Model (FF, 2015), with an additional factor representing the risk of uncertainty, in two versions: based on the Economic Uncertainty Index (IIE-Br / Fundação Getúlio Vargas) and the Economic Policy Uncertainty - EPU (Baker et al., 2016) for Brazil. The proposed model, in both versions, demonstrated greater explanatory power than FF (2015) model based in 32 portfolios, in the period and sample analyzed. The coefficients of uncertainty factors (EPU and IIE-Br) were found to be significant at up to 0.05 in about 75% of the portfolios, indicating that this methodology could be used as a mechanism to better understand the effects of uncertainty in the Brazilian market.

https://doi.org/10.3232/GCG.2020.V14.N1.06
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