ANALYZING THE APPLICABILITY OF THE ARBITRAGE PRICING MODEL IN THE BRAZILIAN STOCK MARKET: A MACRO-ECONOMETRIC PERSPECTIVE

This research study investigates the suitability and relevance of the Arbitrage Pricing Model (APM) in the context of the Brazilian stock market, represented by the B3 S.A (formerly BOVESPA) index. The objective is to unravel the intricate relationship between the stock market performance and various macroeconomic variables, including inflation, interest rates, exchange rates, industrial production, and Gross Domestic Product (GDP).The research employs a multifaceted approach, encompassing stationarity tests, co integration analysis, Granger causality tests, and Vector Error Correction Modelling(VECM) techniques. Initial stationarity tests confirm the need to work with first differences of the variables to attain stationarity, paving the way for cointegration analysis. The Johansen Cointegration Test reveals the presence of a long-term equilibrium relationship between the stock market index and the selected macroeconomic indicators. Intriguingly, the Granger causality tests unveil bidirectional causal relationships among these variables, indicating mutual influence both in the short term and long term. Moreover, the VECM analysis elucidates the interplay between GDP and exchange rates, emphasizing their significant impact on the stock market index over time. The model includes a negative Error Correction Term (ECT), that proves its return to equilibrium in the long run after short term changes.