Interaction between Macroeconomics Variables and IBOVESPA, Brazilian Stock Market Index

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 (VEC). The main results showed that the Ibovespa reacts negatively to impulses in the exchange rate, interest rate differential and variations in the Selic rate. Results also showed positive reaction to the price index IPCA. Furthermore, an important result was achieved from the decomposition analysis of the variance. This showed that the interest rate differential reflects the perception of risk by foreign investors, which explains the considerable variation in the Ibovespa index during that period.