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Modelling the linkages between US and Latin American stock markets

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  • José L. Fernández-Serrano
  • Simón Sosvilla-Rivero

Abstract

This paper examines the linkages between US and Latin American the stock markets during the 1995-2002 period using recently-developed cointegration techniques that allow for structural shifts in the long-run relationship. Our results suggest that, if we apply conventional cointegration tests, we only find a long-run relationship in the cases of Brazil and Mexico for the Dow Jones (DJ) index and in the case of Brazil for the Standard and Poor's 500 (SP500) index. In contrast, if we introduce the possibility of structural breaks, we find strong evidence in favour of such relationship between the Argentine, Chilean and Venezuelan indices and the DJ index after the 1998 financial turmoil, and between the Brazilian and Mexican indices and the DJ index before such turbulence, while some marginal cointegration is detected between the Mexican and DJ indices from February 1998. Additionally, we find evidence of a cointegrating relationship between the Argentine, Chilean and Mexican indices and the SP500 index from August 1998, April 1999 and October 1999, respectively, and between the Brazilian and the SP500 indices before November 1997, as well as some marginal cointegration between the Mexican and SP500 indices before October 1999. The results suggest that the gains from international diversification for investors with long holding periods is limited.

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Paper provided by FEDEA in its series Working Papers with number 2002-14.

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Handle: RePEc:fda:fdaddt:2002-14

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Citations

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Cited by:
  1. Hüseyin Dağli; & Uğur Sivri & Semra Bank, 2012. "International portfolio diversification opportunities between Turkey and other emerging markets," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, Inderscience Enterprises Ltd, vol. 5(1), pages 4-23.
  2. Melike E. Bildirici & Mehmet Salman, 2006. "Measuring Default Risk in Turkey: Econometric Approach," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, Research and Business Development Department, Borsa Istanbul, vol. 8(32), pages 11-36.
  3. Awartani, Basel & Maghyereh, Aktham I. & Shiab, Mohammad Al, 2013. "Directional spillovers from the U.S. and the Saudi market to equities in the Gulf Cooperation Council countries," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 27(C), pages 224-242.
  4. Paresh Kumar Narayan & Russell Smyth, 2004. "Modelling the linkages between the Australian and G7 stock markets: common stochastic trends and regime shifts," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(14), pages 991-1004.
  5. Ceylan Onay & Gözde Ünal, 2012. "Cointegration and Extreme Value Analyses of Bovespa and the Istanbul Stock Exchange," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 62(1), pages 66-90, February.
  6. Lahrech, Abdelmounaim & Sylwester, Kevin, 2013. "The impact of NAFTA on North American stock market linkages," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 25(C), pages 94-108.
  7. Zheng Yi & Chen Heng & Wing-Keung Wong, 2009. "China’s Stock Market Integration with a Leading Power and a Close Neighbor," Journal of Risk and Financial Management, MDPI, Open Access Journal, MDPI, Open Access Journal, vol. 2(1), pages 38-74, December.
  8. A. Maghyereh & B. Awartani, 2012. "Return and volatility spillovers between Dubai financial market and Abu Dhabi Stock Exchange in the UAE," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 22(10), pages 837-848, May.
  9. Nildag Basak Ceylan, 2006. "The Effects of G-7 Countries’ Stock Markets on the Istanbul Stock Exchange," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, Research and Business Development Department, Borsa Istanbul, vol. 8(32), pages 37-56.
  10. Srideep Ganguly & Roberto Benelli, 2007. "Financial Linkages Between the U.S. and Latin Amercia," IMF Working Papers, International Monetary Fund 07/262, International Monetary Fund.
  11. Saadet Kirbas Kasman, 2006. "The Relationship Between Macroeconomic Volatility and Stock Market Volatility," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, Research and Business Development Department, Borsa Istanbul, vol. 8(32), pages 1-10.

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