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Risk transmission between Latin America stock markets and the US: impacts of the 2007/2008 Crisis

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  • Fernanda G Barba

    ()
    (Universidade Federal de Santa Maria)

  • Paulo S Ceretta

    ()
    (Universidade Federal de Santa Maria)

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    Abstract

    The aim of this paper is to investigate whether the US subprime financial turmoil has had any statistically significant effect on the conditional volatility of stock prices in Latin America for which the BEKK methodology is adopted, developed by Engle and Kroner (1995). The t-student distribution is employed as it can provide a best fit for financial data. In order to do this study, we will investigate four Latin America emerging capital markets (Brazil, Argentina, Chile and Mexico) and the United States, considering the period of the recent financial crisis of 2007/2008, analyzing before, during and after the crisis period. Our results show that before the crisis there is no evidence of volatility spillovers from the North American stock market to Latin American ones. During the crisis, there is evidence of volatility spillover effects on some countries. Brazil and Chile affect the US volatility and Argentina, Chile and Mexico are affected by the US's. After the crisis, the volatility of all Latin American stock markets affect and are affected by the US market. These results show an increase in spillover effects from a shock to US stock market to Latin American countries after the 2007/2008 financial crisis.

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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 31 (2011)
    Issue (Month): 2 ()
    Pages: 1025-1037

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    Handle: RePEc:ebl:ecbull:eb-11-00114

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    Related research

    Keywords: financial crisis; volatility spillover; Latin America;

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    References

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    1. Mohamed El Hedi Arouri & Mondher Bellalah & Duc Khuong Nguyen, 2010. "The comovements in international stock markets: new evidence from Latin American emerging countries," Applied Economics Letters, Taylor & Francis Journals, vol. 17(13), pages 1323-1328.
    2. John Beirne & Guglielmo Maria Caporale & Marianne Schulze-Ghattas & Nicola Spagnolo, 2009. "Global and Regional Spillovers in Emerging Stock Markets: A Multivariate GARCH-in-Mean Analysis," Discussion Papers of DIW Berlin 942, DIW Berlin, German Institute for Economic Research.
    3. Dufrénot, Gilles & Mignon, Valérie & Péguin-Feissolle, Anne, 2011. "The effects of the subprime crisis on the Latin American financial markets: An empirical assessment," Economic Modelling, Elsevier, vol. 28(5), pages 2342-2357, September.
    4. Bartram, Söhnke M. & Bodnar, Gordon M., 2009. "No place to hide: The global crisis in equity markets in 2008/2009," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1246-1292, December.
    5. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
    6. Didier, Tatiana & Love, Inessa & Peria, Maria Soledad Martinez, 2010. "What explains stock markets'vulnerability to the 2007-2008 crisis ?," Policy Research Working Paper Series 5224, The World Bank.
    7. Benjamin Miranda Tabak & Eduardo José Araújo Lima, 2002. "Causality and Cointegration in Stock Markets: The Case of Latin America," Working Papers Series 56, Central Bank of Brazil, Research Department.
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    Cited by:
    1. Gilles Dufrénot & Valérie Mignon & Anne Péguin-Feissolle, 2010. "The Effects of the Subprime Crisis on the Latin American Financial Markets: an Empirical Assessment," Working Papers 2010-11, CEPII research center.

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