20 ThestandarddeviationinC-Bondreturnswascomputed
using weekly returns over two years as well. Since these
returnsareindollarsandthereturnsontheBrazilianequity
index are in BR, there is an inconsistency here. We did
estimatethestandarddeviationontheBrazilianequityindex
in dollars but it made little difference to the overall
calculationsincethedollarstandarddeviationwascloseto 36
percent.
21 Stock buybacks during the year were added to the
dividends to obtain a consolidated yield.
22 Weusedtheaverageoftheanalystestimatesforindividual
firms (bottom-up). Alternatively, we could have used the
top-down estimate for the S&P 500 earnings.
23 TheTreasurybondrateisthesumofexpectedinflation
andtheexpectedrealrate.Ifweassumethatrealgrowthis
equaltotherealrate,thelong-termstablegrowthrateshould
be equal to the Treasury bond rate.
24 Theinputthatismostdifficulttoestimateforemerging
marketsis along-term expectedgrowthrate. ForBrazilian
stocks,Iused theaverage consensusestimateofgrowthin
earningsforthelargestBraziliancompaniesthathavelisted
Americandepositaryreceipts(ADRs).Thisestimatemaybe
biased as a consequence.
25 TheregressionistypicallyanOLS(ordinayleastsquares)
regression.
26 The nontrading bias arises because the returns in
nontradingperiods arezeros (eventhough themarket may