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

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  • Giorgio Canarella

    (California State University, Los Angeles, and University of Nevada, Las Vegas)

  • Stephen M. Miller

    (University of Nevada, Las Vegas, and University of Connecticut)

  • Stephen K. Pollard

    (California State University, Los Angeles)

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.

Suggested Citation

  • Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2008. "Dynamic Stock Market Interactions between the Canadian, Mexican, and the United States Markets: The NAFTA Experience," Working papers 2008-49, University of Connecticut, Department of Economics.
  • Handle: RePEc:uct:uconnp:2008-49
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    2. Kuttu, Saint, 2014. "Return and volatility dynamics among four African equity markets: A multivariate VAR-EGARCH analysis," Global Finance Journal, Elsevier, vol. 25(1), pages 56-69.

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    Keywords

    NAFTA stock markets; cointegration; impulse response; volatility transmission;
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    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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