Time-varying Transmission of Prices and Volatility: Latin American Equity Markets 1989-1994
Kent W. Hargis
Goldman, Sachs and Co.
The impact of foreign participation on the integration of Latin American equity markets with the world capital markets and transmission of volatility between the United States and Latin America is investigated with various investment liberalizations. First, the risk exposure of Latin American equity markets as measured by the beta on the world portfolio is found to increase after liberalization in Argentina and Brazil while it increases in Chile with an index of ADRs listed in the U.S. Second, the volatility of the Argentine and Brazilian markets is found to decline significantly after liberalization and with various measures of foreign participation. Third, the transmission of volatility from the U.S. to Latin America is found to increase significantly in Mexico after liberalization. However, volatility is found to be driven primarily by domestic factors in Argentina, Brazil and Chile. It is concluded that foreign participation in Latin American equity markets has increased the influence of world returns on local market returns while the volatility of Latin American equity markets has declined under various investment liberalizations.
JEL Classification: G15, O54working papers series
Date posted: January 16, 1997
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