Pricing ESG Factors In The Brazilian Market Using Fama-French Models
DOI:
https://doi.org/10.5007/2175-8077.2026.e103069Keywords:
ESG, Asset pricing, Fama-French factor models, Risk factors, GRS testAbstract
Objective of the study: This study aims to identify whether performance related to environmental, social and governance (ESG) dimensions represents a significant risk factor in the stock pricing process in the Brazilian market, using the Fama-French factor model approach.
Methodology: The Fama and French (1993, 2015) factor model methodology was applied, with necessary adaptations to the Brazilian case, such as the use of a liquidity filter for stocks, portfolios with a higher level of diversification, treatment of outliers and the development of factors neutral to the size effect. Portfolios with monthly data were analyzed, consisting of Brazilian companies listed on B3, between September 2010 and February 2023.
Originality/relevance: The research sheds light on the relevance and impact that non-financial information related to ESG performance has on investment performance.
Main results: Models that incorporate green risk factors (ESG) are able to provide (marginally) a better representation of the expected returns of stocks traded in the Brazilian market, compared to the three-factor and five-factor Fama-French models, indicating that ESG performance is information priced by investors in the Brazilian market.
Theoretical/methodological, social and management contributions: The contribution of the research lies in the possible implications of its findings for managerial decision-making, in addition to being able to contribute to the allocation of resources available in the market more efficiently, which, from a broader perspective, can contribute to the development of society, the financial system and the country.
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