FINANCIAL LIBERALIZATION AND THE RISK-RETURN RELATIONSHIP: EVIDENCE FROM BRAZIL

Tests of stock returns in developed and emerging markers indicate rhea several factors beyond the market portfolio are priced, a finding inconsistent with the predictions of the standard capital asset pricing model To investigate the implications of financial liberalization for the pricing of risk factors. we conduct asset pricing tests using firm-level data in Brazil before and after liberalization. Subsequent to liberalization. several firm-specific attributes are priced differently. In particular. we find that the premium for small firms is greater in the post-liberalization period. cons1stent with an increase in foreigner investors who prefer large, highly visible firms.