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The relationship of stock returns, interest rates, economic activity and inflation: Evidence from Latin America

Author

Listed:
  • Eurilton Araujo

    (IBMEC - SP)

  • Felipe Augusto da Silva Bastos

    (IBMEC - SP)

Abstract

This study employs a four-variable vector autoregressive (VAR) model to investigate the relationship of stock returns, inflation, interest rates and real economic activity. The sample consists of four Latin American countries from January of 1995 to December of 2005. Our results indicate heterogeneous patterns for the relationship of financial and economic variables across countries. We also show that monetary policy shocks seem to affect Latin American stock markets. That evidence is rather weak, though. On the other hand, there is no significant relationship between stock markets and real activity and inflation.

Suggested Citation

  • Eurilton Araujo & Felipe Augusto da Silva Bastos, 2008. "The relationship of stock returns, interest rates, economic activity and inflation: Evidence from Latin America," Brazilian Business Review, Fucape Business School, vol. 5(1), pages 49-68, January.
    • Handle: RePEc:bbz:fcpbbr:v:5:y:2008:i:1:p:49-68
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