Macroeconomic shocks and the co-movement of stock returns in Latin America |
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Authors: | Eurilton Araújo |
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Institution: | aInsper Institute, Rua Quatá, 300. ZIP: 04546-042 São Paulo-SP, Brazil |
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Abstract: | 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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Keywords: | Real stock returns Structural shocks Co-movement |
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