Trade Agreements and Financial Market Integration in Latin America and the US

Obed Fernando Izaguirre, Seungho Shin () and Duygu Zirek
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Obed Fernando Izaguirre: Optum, 11000 Optum Circle, Eden Prairie, MN 55344, USA
Seungho Shin: Francis J. Noonan School of Business, Engineering and Innovation, Loras College, Dubuque, IA 52001, USA
Duygu Zirek: Feliciano School of Business, Montclair State University, Montclair, NJ 07043, USA

JRFM, 2024, vol. 17, issue 3, 1-26

Abstract: The primary objective of this study is to examine the extent of financial integration between Latin American and US financial markets, particularly in light of recent efforts to foster integration through trade agreements. Spanning from 1 January 1990 to 31 December 2019, the sample focuses on major market indices and key sectors. Financial integration is quantified using a DCC multivariate GARCH model, incorporating a smooth transition model, structural breaks, and regression-based approaches. Results indicate increased comovement with the US for main market indices in Argentina, Chile, Colombia, Mexico, and Peru, while Brazil shows a decrease. Similar trends are observed in sectoral analyses. This study also reveals heightened correlation post-trade agreements. Structural break analysis highlights significant shifts in dynamic correlations for countries with US free trade agreements. These findings support the argument of increased financial integration, bearing significance for portfolio diversification and international policy formulation.

Keywords: trade agreements; international financial integration; comovement; emerging economies; Latin America (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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