Integration Analysis of Latin American Stock Markets 1993-2007
28 Pages Posted: 3 Dec 2007
Date Written: December 2007
Abstract
This paper studies the time varying relationships between seven Latin America stock markets, the United States and a regional benchmark. Our interest is motivated by the completion of financial liberalization across major Latin America countries in the early 1990s. Starting with correlation analysis, we find relatively strong short-term co-movements between larger Latin America markets and the regional benchmark and U.S. market. We extend our analysis by applying a number of cointegration tests to examine the long-term equilibrium relations. The results are strongly in agreement that the Latin America equity markets have not become integrated either within the region or the United States, which suggests long-run diversification benefits to U.S and other international investors. Two recursive analyses are also implemented to unveil the dynamics of the regional and international integration.
Keywords: Latin America, cointegration, equity markets, cointegration
JEL Classification: G15
Suggested Citation: Suggested Citation
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