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Volatility transmission between US and Latin American stock markets: Testing the decoupling hypothesis

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  • Cardona, Laura
  • Gutiérrez, Marcela
  • Agudelo, Diego A.

Abstract

We test for volatility transmission between US and the six largest Latin American stock markets (Argentina, Brazil, Chile, Colombia, Mexico and Peru) using MGARCH-BEKK models in daily frequency from March 1993 to March 2013. As expected, we find strong evidence of volatility transmission from US to the Latin American markets but not so in the opposite direction. Besides, we reject the hypothesis of decoupling between US, Brazil and Mexico: the conditional correlations between US and the two emerging markets have steadily increased over the sample period and volatility transmissions have become more significant from 2003 onwards. We also find some evidence on the leadership of Brazil in the region, being the only Latin American stock market consistently transmitting volatility to US. We discuss implications for the financial integration literature.

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  • Cardona, Laura & Gutiérrez, Marcela & Agudelo, Diego A., 2017. "Volatility transmission between US and Latin American stock markets: Testing the decoupling hypothesis," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 115-127.
  • Handle: RePEc:eee:riibaf:v:39:y:2017:i:pa:p:115-127
    DOI: 10.1016/j.ribaf.2016.07.008
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    3. David E. Allen & Michael McAleer, 2018. "Theoretical and Empirical Differences between Diagonal and Full BEKK for Risk Management," Energies, MDPI, Open Access Journal, vol. 11(7), pages 1-19, June.
    4. Liu, Xueyong & An, Haizhong & Li, Huajiao & Chen, Zhihua & Feng, Sida & Wen, Shaobo, 2017. "Features of spillover networks in international financial markets: Evidence from the G20 countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 479(C), pages 265-278.

    More about this item

    Keywords

    Volatility transmission; MGARCH; Decoupling hypothesis; Emerging markets; Conditional correlation; Financial integration;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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