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The Effects of the Subprime Crisis on the Latin American Financial Markets: An Empirical Assessment

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Author Info

  • Gilles Dufrénot

    ()
    (DEFI - Centre de Recherche en Développement Economique et Finance Internationale - Université de la Méditerranée - Aix-Marseille II)

  • Valérie Mignon

    ()
    (CEPII - Centre d'études prospectives et d'informations internationales - Université de Paris X - Nanterre)

  • Anne Peguin-Feissolle

    ()
    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)

Abstract

The aim of this article is to answer the following question: can the considerable rise in the volatility of the LAC stock markets in the aftermath of the 2007/2008 crisis be explained by the worsening financial environment in the US markets? To this end, we rely on a time-varying transition probability Markov-switching model, in which "crisis" and "non-crisis" periods are identified endogenously. Using daily data from January 2004 to April 2009, our findings do not validate the "financial decoupling" hypothesis since we show that the financial stress in the US markets is transmitted to the LAC's stock market volatility, especially in Mexico.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00587460.

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Date of creation: 20 Apr 2011
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Handle: RePEc:hal:wpaper:halshs-00587460

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Keywords: Stock markets; volatility; financial stress; regime-switching; Markov-switching model;

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Cited by:
  1. Marcelo Brutti Righi & Paulo Sérgio Ceretta, 2011. "Estimating value at risk and optimal hedge ratio in Latin markets: a copula-based GARCH approach," Economics Bulletin, AccessEcon, vol. 31(2), pages 1717-1730.
  2. Fernanda G Barba & Paulo S Ceretta, 2011. "Risk transmission between Latin America stock markets and the US: impacts of the 2007/2008 Crisis," Economics Bulletin, AccessEcon, vol. 31(2), pages 1025-1037.

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