Stock market linkages: Evidence from Latin America |
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| Institution: | 1. Institute for Solid State Physics and Optics, Wigner Research Centre for Physics, Hungarian Academy of Sciences, H-1525 Budapest, P.O.Box 49, Hungary;2. Institute of Experimental Physics, Slovak Academy of Sciences, Watsonová 47, 04001 Ko?ice, Slovakia;1. Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto da Universidade de São Paulo, FEA-RP/USP, Ribeirão Preto-SP, Brazil;2. Centro Universitário Municipal de Franca – Uni-FACEF, Brazil;1. Xi''an JiaoTong University, School of Economics and Finance, Xi''an, 710061, China;2. Tongji University, School of Economics and Management, 200092, China;3. Nanjing University of Finance and Economics, School of Public Finance and Taxation, Nanjing, 210023, China |
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| Abstract: | This study investigates the dynamic interdependence of the major stock markets in Latin America. Using data from 1995 to 2000, we examine the stock market indexes of Argentina, Brazil, Chile, Colombia, Mexico and Venezuela. The index level series are non-stationary and so we employ cointegration analysis and error correction vector autoregressions (VAR) techniques to model the interdependencies. We find that there is one cointegrating vector which appears to explain the dependencies in prices. The results are robust to sensitivity tests based on translating indexes to US dollars (i.e., a common currency for all the markets) and to partitioning the sample into periods before and after the Asian and Russian financial crises of 1997 and 1998, respectively. Our results suggest that the potential for diversifying risk by investing in different Latin American markets is limited. |
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