Uncertainty and the stock market return at B3: an analysis during the Covid-19 outbreak

Abstract

This work studies the relationship between uncertainty and the Brazilian stock market, during the COVID-19 crisis. It compares the stock market performance of the securities listed at the Ibovespa index to the change in these companies’ future earnings forecast, using an approach suggested by Landier & Thesmar (2020). The earnings forecasts for 2020 had a decrease of approximately 33% during the observed period. However, the expectations for 2021, 2022, and 2023 were less affected. We also discuss how much discount rate changes explain market dynamics, using a similar methodology to the one proposed by Shiller (1981).We can note that the computed implicit discount rate changed from 8,5% in January to 13,4% in March, nearly returning to the initial level in August. We conclude that the revisions cannot explain the market crash alone, and that the discount rate changes played an important role in the market movements.