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U.S. and Latin American stock market linkages

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  • Lahrech, Abdelmounaim
  • Sylwester, Kevin
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    Abstract

    This paper examines to what extent the Latin American equity markets of Argentina, Brazil, Chile and Mexico have become more integrated with the US equity market. We empirically measure integration by finding the dynamic conditional correlation (DCC) between each market and that in the U.S. using a DCC multivariate GARCH model. We then track how these correlations evolve over time using a smooth transition model which not only shows when greater integration first occurred but also how long it took these correlations to transition to their new levels. Our sample period stretches from December 30th, 1988 to March 26th, 2004. Results show an increase in the degree of co-movement between these countries’ equity returns and those in the U.S. although the magnitude and speed of these increases greatly varies across these four countries.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of International Money and Finance.

    Volume (Year): 30 (2011)
    Issue (Month): 7 ()
    Pages: 1341-1357

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    Handle: RePEc:eee:jimfin:v:30:y:2011:i:7:p:1341-1357

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    Web page: http://www.elsevier.com/locate/inca/30443

    Related research

    Keywords: Latin American stock markets; Dynamic conditional correlation; Smooth transition;

    References

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    Cited by:
    1. Rahul Deora & Duc Khuong Nguyen, 2014. "Time-scale comovement between the Indian and world stock markets," Working Papers 2014-242, Department of Research, Ipag Business School.
    2. Khalfaoui, R & Boutahar, M, 2012. "Portfolio risk evaluation: An approach based on dynamic conditional correlations models and wavelet multiresolution analysis," MPRA Paper 41624, University Library of Munich, Germany.
    3. Joseph J. French & Wei-Xuan Li, 2012. "A note on US institutional equity flows to Brazil," Review of Accounting and Finance, Emerald Group Publishing, vol. 11(3), pages 298-315.
    4. Savona, Roberto, 2014. "Hedge fund systemic risk signals," European Journal of Operational Research, Elsevier, vol. 236(1), pages 282-291.
    5. Baumöhl, Eduard, 2013. "Stock market integration between the CEE-4 and the G7 markets: Asymmetric DCC and smooth transition approach," MPRA Paper 43834, University Library of Munich, Germany.
    6. Baumöhl, Eduard & Lyócsa, Štefan, 2014. "Volatility and dynamic conditional correlations of worldwide emerging and frontier markets," Economic Modelling, Elsevier, vol. 38(C), pages 175-183.
    7. Baumohl, Eduard & Lyocsa, Stefan, 2013. "Volatility and dynamic conditional correlations of European emerging stock markets," MPRA Paper 49898, University Library of Munich, Germany.

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