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Stock returns and foreign investment in Brazil

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  • Luciana Reis
  • Roberto Meurer
  • Sergio Da Silva

Abstract

We examine the relationship between stock returns and foreign investment in Brazil, and find that the inflows of foreign investment boosted the returns from 1995 to 2005. There was a strong contemporaneous correlation, although not Granger causality. Foreign investment along with the exchange rate, the influence of the world stock markets and country risk can explain 73% of the changes that occurred in the stock returns over the period. We also find that positive feedback trading played a role, and that the market promptly assimilated new information.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09603107.2010.498342
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 20 (2010)
Issue (Month): 17 ()
Pages: 1351-1361

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Handle: RePEc:taf:apfiec:v:20:y:2010:i:17:p:1351-1361

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  1. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2001. "Does Financial Liberalization Spur Growth?," NBER Working Papers 8245, National Bureau of Economic Research, Inc.
  2. Juncal Cunado Eizaguirre & Javier Gomez Biscarri & Fernando Perez de Gracia Hidalgo, 2009. "Financial liberalization, stock market volatility and outliers in emerging economies," Applied Financial Economics, Taylor & Francis Journals, vol. 19(10), pages 809-823.
  3. Benjamin Miranda Tabak, 2003. "The random walk hypothesis and the behaviour of foreign capital portfolio flows: the Brazilian stock market case," Applied Financial Economics, Taylor & Francis Journals, vol. 13(5), pages 369-378.
  4. Perron, P., 1990. "Further Evidence On Breaking Trend Functions In Macroeconomics Variables," Papers 350, Princeton, Department of Economics - Econometric Research Program.
  5. repec:ebl:ecbull:v:6:y:2005:i:10:p:1-17 is not listed on IDEAS
  6. Newton, Da Costa Jr & Carlos, Mineto & Sergio, Da Silva, 2006. "Disposition effect and gender," MPRA Paper 1848, University Library of Munich, Germany.
  7. Liam Gallagher, 2000. "Macroeconomic shocks under alternative exchange rate regimes: the Irish experience," Applied Economics, Taylor & Francis Journals, vol. 32(7), pages 933-944.
  8. Sergio Da Silva & Guilherme Moura, 2005. "Is There a Brazilian J-Curve?," Economics Bulletin, AccessEcon, vol. 6(10), pages 1-17.
  9. Harvey, Campbell R, 1995. "The Risk Exposure of Emerging Equity Markets," World Bank Economic Review, World Bank Group, vol. 9(1), pages 19-50, January.
  10. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, 04.
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Cited by:
  1. Joseph J. French & Wei-Xuan Li, 2012. "A note on US institutional equity flows to Brazil," Review of Accounting and Finance, Emerald Group Publishing, vol. 11(3), pages 298-315.
  2. Ülkü, Numan & Karpova, Yekaterina, 2014. "Do international equity investors rebalance to manage currency exposure? A study of Greece foreign investor flows data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 150-169.

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