Abstract
This paper analyzes the relationship of a few macroeconomic variables with Brazils risk premium (spread of Brazilian C-bonds in relation to U.S. Treasury bonds), and with the returns of the Brazilian stock market index, Ibovespa, during the period of January 1995 to December 2001. Co-integration, error correction model, and Granger causality tests were used in the paper. The co-integration tests and the error correction model suggest that the Ibovespa returns are co-integrated with macroeconomic variables such as real exchange rate and real GDP, and also with Brazils country risk premium. Additionally, unidirectional
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