Risk transmission between Latin America stock markets and the US: impacts of the 2007/2008 Crisis

Fernanda Barba () and Paulo Ceretta ()
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Fernanda Barba: Universidade Federal de Santa Maria
Paulo Ceretta: Universidade Federal de Santa Maria

Economics Bulletin, 2011, vol. 31, issue 2, 1025-1037

Abstract: The aim of this paper is to investigate whether the US subprime financial turmoil has had any statistically significant effect on the conditional volatility of stock prices in Latin America for which the BEKK methodology is adopted, developed by Engle and Kroner (1995). The t-student distribution is employed as it can provide a best fit for financial data. In order to do this study, we will investigate four Latin America emerging capital markets (Brazil, Argentina, Chile and Mexico) and the United States, considering the period of the recent financial crisis of 2007/2008, analyzing before, during and after the crisis period. Our results show that before the crisis there is no evidence of volatility spillovers from the North American stock market to Latin American ones. During the crisis, there is evidence of volatility spillover effects on some countries. Brazil and Chile affect the US volatility and Argentina, Chile and Mexico are affected by the US's. After the crisis, the volatility of all Latin American stock markets affect and are affected by the US market. These results show an increase in spillover effects from a shock to US stock market to Latin American countries after the 2007/2008 financial crisis.

Keywords: financial crisis; volatility spillover; Latin America (search for similar items in EconPapers)
JEL-codes: F3 G0 (search for similar items in EconPapers)
Date: 2011-04-02
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Citations: View citations in EconPapers (5)

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