Stock returns and foreign investment in Brazil

Luciana Reis · Roberto Meurer · Sérgio Da Silva

23 citations0/0 files storedApplied Financial Economics

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Financial Markets and Investment Strategies Financial Risk and Volatility Modeling Market Dynamics and Volatility

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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