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

Giorgio Canarella, Stephen M. Miller () and Stephen K. Pollard
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Giorgio Canarella: California State University, Los Angeles, and University of Nevada, Las Vegas
Stephen K. Pollard: California State University, Los Angeles

No 2008-49, Working papers from University of Connecticut, Department of Economics

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.

Keywords: NAFTA stock markets; cointegration; impulse response; volatility transmission (search for similar items in EconPapers)
JEL-codes: G10 C30 C50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-fmk, nep-rmg and nep-sea
Date: 2008-12
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Related works:
Working Paper: Dynamic Stock Market Interactions between the Canadian, Mexican, and the United States Markets: The NAFTA Experience (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:uct:uconnp:2008-49

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