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

STOCK RETURNS: CYCLICALITY, PREDICTION, AND ECONOMIC CONSEQUENNCES, G. I. Ellison, ed., Nova Science Publishers, Inc., 4th Quarter 2009

94 Pages Posted: 23 Jan 2009 Last revised: 20 Jan 2010

See all articles by Giorgio Canarella

Giorgio Canarella

California State University, Los Angeles - Department of Economics & Statistics; University of Nevada, Las Vegas

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Stephen K. Pollard

TUI University

Date Written: January 15, 2010

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

JEL Classification: G10, C30, C50

Suggested Citation

Canarella, Giorgio and Miller, Stephen M. and Pollard, Stephen K., Dynamic Stock Market Interactions between the Canadian, Mexican, and the United States Markets: The NAFTA Experience (January 15, 2010). STOCK RETURNS: CYCLICALITY, PREDICTION, AND ECONOMIC CONSEQUENNCES, G. I. Ellison, ed., Nova Science Publishers, Inc., 4th Quarter 2009. Available at SSRN: https://ssrn.com/abstract=1331607

Giorgio Canarella

California State University, Los Angeles - Department of Economics & Statistics ( email )

Los Angeles
Los Angeles, CA 90032
United States

University of Nevada, Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

Stephen K. Pollard

TUI University ( email )

5665 Plaza Dr., 3rd Floor
CA, 90630
Cypress, CA 90630
United States

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