AN ILLUSTRATION OF THE APT’s IMPLEMENTATION FOR BRAZILIAN PORTFOLIOS OF VALUE AND GROWTH STOCKS

Abstract

This paper illustrates how to apply the Arbitrage Pricing Theory (APT) model in Brazil according to the implementation of 5 factors already suggested in the literature. Its purpose is not to test the APT’s application for Brazil, but rather to verify whether portfolios classified according to the value and growth criterions are priced in a systematically different way according to the APT. The “industrial production” and “inflation” factors do not present significant coefficients. Only the “interest rates” and “market” factors are significant for all the portfolios. The “market” factor, by construction, was created to explain the behavior not explained by other factors, indicating that important factors may have been excluded by the APT’s implementation suggested in the literature. The classification of portfolios by the value and growth criterions did not result in a pattern of coefficients for the factors so as to indicate that this criterion leads to systematic differences in pricing.