Macroeconomic Shocks and the Co-movement of Stock Returns in Latin America
This paper studies the economic sources underlying the co-movement of real stock returns in Latin America. Following the literature on structural vector autoregressive models (SVARs), I use long-run restrictions to identify three structural shocks: demand, supply, and portfolio shocks. For some countries, portfolio shocks are important factors behind real stock returns. Furthermore, these shocks seem to be important in explaining cross-country co-movement patterns. However, these findings are not statistically strong due to the degree of uncertainty about the estimates of the importance of each structural shock and the cross-correlation coefficients. Therefore, macroeconomic shocks (supply and demand) cannot be neglected in accounting for the dynamics of real stock returns.
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| Date of creation: | Oct 2008 |
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| Handle: | RePEc:ibm:ibmecp:wpe_113 |
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