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

  • Gilles Dufrénot

    ()

    (CEDERS - Centre de Recherche en Développement Economique et Finance Internationale - Université de la Méditerranée - Aix-Marseille 2)

  • Valérie Mignon

    ()

    (CEPII - Centre d'études prospectives et d'informations internationales - UP10 - Université Paris 10, Paris Ouest Nanterre La Défense)

  • Anne Peguin-Feissolle

    ()

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université Paul Cézanne - Aix-Marseille 3 - Université de la Méditerranée - Aix-Marseille 2 - EHESS - École des hautes études en sciences sociales - CNRS - AMU - Aix-Marseille Université)

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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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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  1. Brenda Gonzalez-Hermosillo & Heiko Hesse, 2009. "Global Market Conditions and Systemic Risk," IMF Working Papers 09/230, International Monetary Fund.
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  18. repec:idb:wpaper:4565 is not listed on IDEAS
  19. Heiko Hesse & Nathaniel Frank & Brenda Gonzalez-Hermosillo, 2008. "Transmission of Liquidity Shocks; Evidence from the 2007 Subprime Crisis," IMF Working Papers 08/200, International Monetary Fund.
  20. Kim, Chang-Jin & Piger, Jeremy & Startz, Richard, 2008. "Estimation of Markov regime-switching regression models with endogenous switching," Journal of Econometrics, Elsevier, vol. 143(2), pages 263-273, April.
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