International stock market linkages: Evidence from Latin America

Panayiotis F. Diamandis

Global Finance Journal, 2009, vol. 20, issue 1, 13-30

Abstract: This paper examines long-run relationships between four Latin America stock markets and a mature stock market that of the US. We estimate both the autoregressive and moving average representations of a VAR model as suggested by Johansen [Johansen, S. (1988). Statistical analysis of cointegrating vectors, Journal of Economic Dynamics and Control, 12, 231-254, Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models, Econometrica, 59, 1551-1580.] using weekly observations for the period January 1988-July 2006. The main finding of the analysis suggests that there is one long-run relationship among the five equity markets. Application of the Gonzalo and Granger [Gonzalo, J., & Granger, C. W. J. (1995). Estimation of common long-memory components in cointegrated systems, Journal of Business and Economic Statistics, 13, 27-35.] methodology indicates that the examined stock markets are partially integrated, while there is also evidence that the four stock markets of Latin America (Argentina, Brazil, Chile and Mexico) together with the US stock market have four significant common permanent components, which drive this system of equity markets in the long run. Finally, we show that although cointegration exists there are small long-run benefits from international portfolio diversification since the stock prices adjust very slowly to these common trends.

Keywords: Latin; America; equity; markets; Market; integration; Common; stochastic; trends; International; portfolio; diversification (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (51)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:20:y:2009:i:1:p:13-30

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