Commodity Prices and the Brazilian Stock Market: Evidence from a Structural VAR Model

Brazil is a resource-rich economy that relies heavily on the exports of several important commodities. The variability of commodity prices affects both the economy and the stock market. This study investigates the relationship between commodity price shocks and stock returns in Brazil using a structural vector autoregressive (SVAR) model. This study uses monthly data on prices of five major export commodities, stock returns, and several control variables, covering the period from January 2010 to December 2022. To account for the Brazilian economic crisis between 2014 and 2016, we have analyzed the effects of commodity prices on stock prices in three different time periods, namely, before the economic crisis (January 2010–March 2014), during the economic crisis (April 2014–December 2016), and after the economic crisis (January 2017–December 2022). The empirical results of this study provide evidence to conclude that stock returns increase following a positive global commodity price shock or a positive exchange rate shock. The effects are more noticeable during the economic crisis in Brazil. The results also show that the volatility of Brazilian stock returns is mostly explained by global oil prices and exchange rate movements in the long run.