The relation of economic policies and macroeconomic factors to brazilian stock market performance
Abstract
One of the challenges of the literature on the determinants of stock market performance is to find out how the returns of agents are affected by economic changes, via economic policy or market shocks. The main objective of this work was to analyze the relationship between the credibility of monetary policy and stock market performance in Brazil. For this, time series models, VAR and VECM, were applied in monthly data from January 2003 to May 2016.Thus, one of the concerns was to build a model that includes national and international macroeconomic variables that could affect the performance of the Brazilian stock market. The results point to the existence of a long-term equilibrium in which the stock market performance is positively affected by the credibility of the inflation targeting regime. It is also influenced by fiscal policy and the macroeconomic scenario, mainly by public debt, interest rate, and exchange rate. Thus, the paper contributes to demonstrating to analysts, investors and regulators that economic policies affect the performance of the stock market in Brazil, especially monetary policy under credible inflation targeting regime.
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