The foreign capital flows and the behavior of stock prices at BM&FBovespa

The main purpose of this article is to investigate alternative explanations for the impact of foreign capital flows on Ibovespa returns, including: trend chasing, information contribution and mutual feedback. Daily data of the period between 2005 and 2012 are analyzed using simultaneous equation models which are estimated by ordinary least squares (OLS). Several exogenous market variables are included as determinants of returns and capital flows. The research results present that only the information contribution hypothesis is supported by the analysis. Besides, it also shows that the 2008 global financial crisis had no significant effect on the interaction of market returns with foreign capital flows. [PUBLICATION ABSTRACT]