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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)

  • Anne Peguin-Feissolle


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

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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