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Dynamic Stock Market Interactions between the Canadian, Mexican, and the United States Markets: The NAFTA Experience

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Author Info

  • Giorgio Canarella

    ()
    (Department of Economics, University of Nevada, Las Vegas)

  • Stephen M. Miller

    ()
    (Department of Economics, University of Nevada, Las Vegas)

  • Stephen K. Pollard

    ()
    (Department of Economics, University of Nevada, Las Vegas)

Abstract

This paper explores the dynamic linkages that portray different facets of the joint probability distribution of stock market returns in NAFTA (i.e., Canada, Mexico, and the US). Our examination of interactions of the NAFTA stock markets considers three issues. First, we examine the long-run relationship between the three markets, using cointegration techniques. Second, we evaluate the dynamic relationships between the three markets, using impulse-response analysis. Finally, we explore the volatility transmission process between the three markets, using a variety of multivariate GARCH models. Our results also exhibit significant volatility transmission between the second moments of the NAFTA stock markets, albeit not homogenous. The magnitude and trend of the conditional correlations indicate that in the last few years, the Mexican stock market exhibited a tendency toward increased integration with the US market. Finally, we do note that evidence exists that the Peso and Asian financial crises as well as the stock-market crash in the US affect the return and volatility time-series relationships.

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File URL: http://web.unlv.edu/projects/RePEc/pdf/0905.pdf
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Bibliographic Info

Paper provided by University of Nevada, Las Vegas , Department of Economics in its series Working Papers with number 0905.

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Length: 94 pages
Date of creation: Jan 2009
Date of revision:
Publication status: Published in Stock Returns: Cyclicality, Prediction, and Economic Consequences, ed. George I. Ellison, Nova Science Publishers, Inc., 4th Quarter 2009
Handle: RePEc:nlv:wpaper:0905

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Keywords: NAFTA stock markets; cointegration; impulse response; volatility transmission;

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  1. Younes Boujelbène & Majdi Ksantini, 2009. "La transmission entre les marchés boursiers :Une analyse en composante principale," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 52(2), pages 161-194.

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