Is the CAPM Dead or Alive in the Brazilian Market?

The central purpose of this work is to test the Sharpe-Lintner-Black Capital Asset Pricing Model in the Brazilian equity market. We have concluded that the CAPM is dead in the Brazilian equity market because, besides using the market premiums to explain the panel equity premiums, there are also some anomalies, such as, the firm size, the equity price-to-book value, the dividend yield, and the price-earnings ratio. Furthermore, by using the recent panel cointegration FMOLS (fully modified OLS) estimator, this paper corroborates the Fama & French three-factor model (1992, 1993). This work finds also two new three-factor models to explain the local market that satisfy the non-arbitrage condition. These results are important for the purpose of asset pricing and hedging in the Brazilian equity market.