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Spatial Linkages in International Financial Markets

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  • Viviana Fernández

Abstract

Spatial dependency has been broadly studied in several research areas, such as environmental criminology, economic geography, environmental sciences, and urban economics. However, it has been essentially overlooked in other subfields of economics and in the field of finance as a whole. A key element at stake is the definition of contiguity. In the context of financial markets, defining a metric distance is not a simple matter. In this article, we explore the notion of spatial dependency in a panel of 126 Latin American firms from Brazil, Chile, and Mexico over the period 1997-2006. Firstly, we formulate a spatial version of the capital asset pricing model (S-CAPM), which accounts for alternative measures of distance between firms, such as market capitalization, the market-to-book, enterprise value-to-EBITDA, and the debt ratios. Secondly, we analyze the potential existence of spatial linkages in investment and dividend decisions. We conclude that there may be contemporaneous linkages in firms’ decisions of such ratios, which may be indicative of some strategic behavior.

Suggested Citation

  • Viviana Fernández, 2007. "Spatial Linkages in International Financial Markets," The Institute for International Integration Studies Discussion Paper Series iiisdp234, IIIS.
    • Handle: RePEc:iis:dispap:iiisdp234
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    References listed on IDEAS

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    1. Varouj A. Aivazian & Ying Ge & Jiaping Qiu, 2005. "Debt Maturity Structure and Firm Investment," Financial Management, Financial Management Association, vol. 34(4), Winter.
    2. Oscar Villar & Esther Vayá, 2005. "Financial Contagion between Economies - an Exploratory Spatial Analysis," ERSA conference papers ersa05p574, European Regional Science Association.
    3. Aivazian, Varouj A. & Ge, Ying & Qiu, Jiaping, 2005. "The impact of leverage on firm investment: Canadian evidence," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 277-291, March.
    4. Stephen C. Vogt, 1994. "The Cash Flow/investment Relationship: Evidence from U.S. Manufacturing Firms," Financial Management, Financial Management Association, vol. 23(2), Summer.
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