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Causality and Cointegration in Stock Markets: The Case of Latin America

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Author Info
Benjamin Miranda Tabak
Eduardo José Araújo Lima

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Abstract

This paper analyzes causality and cointegration relationships among stock markets for Latin America and the United States. Within a simple framework causality and cointegration is tested for Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela and the US. We found no evidence of cointegration among these stock markets but short-run causality could not be rejected. Furthermore, we use impulse response functions to analyze the relative impact of shocks in the US stock index (Dow Jones) on Latin American indexes. Evidence suggests that the responses differ significantly among these countries. These findings imply that there are valuable opportunities to international investors from diversifying in US and Latin American stocks.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps56.pdf
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Publisher Info
Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 56.

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Date of creation: Dec 2002
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Publication status: Published in Brazilian journal of Business Economics, Vol. 3, no. 2, (-Aug 2003).
Handle: RePEc:bcb:wpaper:56

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Web page: http://www.bcb.gov.br/?english

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Pagan, Jose A & Soydemir, Gokce, 2000. "On the Linkages between Equity Markets in Latin America," Applied Economics Letters, Taylor and Francis Journals, vol. 7(3), pages 207-10, March. [Downloadable!] (restricted)
  2. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
  3. Cheung, Yan-Leung & Mak, Sui-Choi, 1992. "The International Transmission of Stock Market Fluctuation between the Developed Markets and the Asian-Pacific Markets," Applied Financial Economics, Taylor and Francis Journals, vol. 2(1), pages 43-47, March. [Downloadable!] (restricted)
  4. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  5. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July. [Downloadable!] (restricted)
  6. Kanas, Angelos, 1998. "Linkages between the US and European Equity Markets: Further Evidence from Cointegration Tests," Applied Financial Economics, Taylor and Francis Journals, vol. 8(6), pages 607-14, December. [Downloadable!] (restricted)
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  7. Gerrits, Robert-Jan & Yuce, Ayse, 1999. "Short- and Long-Term links among European and US Stock Markets," Applied Financial Economics, Taylor and Francis Journals, vol. 9(1), pages 1-9, February. [Downloadable!] (restricted)
  8. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Caio Guttler & Roberto Meurer & Sergio Da Silva, 2008. "Is the Brazilian stockmarket efficient?," Economics Bulletin, Economics Bulletin, vol. 7(1), pages 1-16. [Downloadable!]
  2. Guttler, Caio & Meurer, Roberto & Da Silva, Sergio, 2006. "Informational inefficiency of the Brazilian stockmarket," MPRA Paper 1980, University Library of Munich, Germany. [Downloadable!]
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