Interaction between Macroeconomic Variables and IBOVESPA, Brazilian Stock Market's Index: Analysis from a VEC Model

This paper analyzes the relations between macroeconomic variables and the Brazilian stock market index, the Ibovespa, from January of 2001 to December of 2011, using a Vector Error Correction model. The main results show that the Ibovespa reacts negatively to impulse in the exchange rate and interest rate differential and to variations in the Selic rate. The results also show a positive reaction to the price index. Furthermore, an important result was achieved from the decomposition analysis of the variance, which shows that the interest rate differential reflects the perception of risk by foreign investors. This explains the considerable variation in the Ibovespa index during the period of the time examined.