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Causality and cointegration analysis between macroeconomic variables and the Bovespa.
Fabiano Mello da Silva1, Daniel Arruda Coronel1, Kelmara Mendes Vieira1
1Federal University of Santa Maria, Department of Business, Santa Maria, Rio Grande do Sul, Brazil.
Plos One
|March 4, 2014
Summary
This study found short-term causality between inflation (CPI) and the São Paulo Stock Exchange (Bovespa). Long-term analysis revealed macroeconomic variables influence Bovespa, aligning with economic theory, except for the Selic rate.
Area of Science:
- Economics
- Financial Markets
- Econometrics
Background:
- Macroeconomic factors significantly influence stock market performance.
- Understanding causality between economic indicators and stock indices is crucial for investment strategies.
Purpose of the Study:
- To analyze the causal relationship between key macroeconomic variables and the São Paulo Stock Exchange (Bovespa) index.
- To investigate both short-term and long-term dynamics between these variables.
Main Methods:
- Cointegration analysis using Johansen tests (trace and maximum eigenvalue statistics).
- Granger causality tests with error correction model.
- Analysis of normalized cointegration vectors.
Main Results:
- Existence of at least one cointegration vector between variables.
- Short-term causality identified between Consumer Price Index (CPI) and Bovespa.
- Long-term causality observed between macroeconomic variables and Bovespa.
- GDP showed positive, while inflation and exchange rate exhibited negative (contrary to theory) relationships with Bovespa.
Conclusions:
- Macroeconomic variables, particularly GDP, inflation, and exchange rates, exhibit long-term cointegration with the Bovespa index.
- The Selic rate was found to be insignificant in relation to Bovespa.
- Bovespa's variance is predominantly explained by its own past performance.
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