Brazilian Monetary Policy’s Influence on Investment Funds’ Allocation in Corporate Bonds

Abstract

The aim of this paper is to understand how monetary policy influence investment funds’ allocation in corporate bonds. This assumption is in line with the perspective that several factors influence funds’ allocation process, especially changes in a country's economic scenario. The sample of this study is comprised of 352 equity funds and 1,085 multimarket funds, during the period from December 2009 to July 2020. I used multivariate regression with panel data for hypotheses testing. I noted a small percentage of funds’ investment in corporate bonds, in other words, only about 1.3% of total net of asset. In addition, multimarket funds used to invest more in debentures than equity funds. Concerning the regression model, the interest rate (Selic) had a positive association with funds’ amount allocated in corporate bonds. It is a result of Brazilian context, whose corporate bonds are indexed according to DI rate. As expected, I observed a positive relationship between inflation rate and funds’ investment in debentures, which reveals that the fear of deflation causes investors to increase the percentages invested in corporate debt securities. As respects funds’ features, time and minimum balance, do not guarantee more investment in corporate bonds. Thus, this paper contributes to the literature for bringing monetary policy closer to capital market and discussing an emerging country’s funds industry. In this way, it is relevant because it involves an important source of credit for companies, based on data from institutional investors.