Modelling the Linkages between Us and Latin American Stock Markets

FEDEA Working Paper No. 2002-14

27 Pages Posted: 24 Jul 2002  

José Luis Fernández-Serrano

Universidad Nacional de Educacion a Distancia (UNED)

Simon Sosvilla-Rivero

Complutense Institute for International Studies

Date Written: June 2002

Abstract

This paper examines the linkages between US and Latin American the stock markets during the 1995-2002 period using recently-developed cointegration techniques that allow for structural shifts in the long-run relationship. Our results suggest that, if we apply conventional cointegration tests, we only find a long-run relationship in the cases of Brazil and Mexico for the Dow Jones (DJ) index and in the case of Brazil for the Standard and Poor's 500 (SP500) index. In contrast, if we introduce the possibility of structural breaks, we find strong evidence in favour of such relationship between the Argentine, Chilean and Venezuelan indices and the DJ index after the 1998 financial turmoil, and between the Brazilian and Mexican indices and the DJ index before such turbulence, while some marginal cointegration is detected between the Mexican and DJ indices from February 1998. Additionally, we find evidence of a cointegrating relationship between the Argentine, Chilean and Mexican indices and the SP500 index from August 1998, April 1999 and October 1999, respectively, and between the Brazilian and the SP500 indices before November 1997, as well as some marginal cointegration between the Mexican and SP500 indices before October 1999. The results suggest that the gains from international diversification for investors with long holding periods is limited.

Keywords: Stock market, Cointegration, Structural change

JEL Classification: C22, F36, G15

Suggested Citation

Fernández-Serrano, José Luis and Sosvilla-Rivero, Simon, Modelling the Linkages between Us and Latin American Stock Markets (June 2002). FEDEA Working Paper No. 2002-14. Available at SSRN: https://ssrn.com/abstract=318440 or http://dx.doi.org/10.2139/ssrn.318440

José Luis Fernández-Serrano

Universidad Nacional de Educacion a Distancia (UNED) ( email )

Facultad de CC EE y EE
Paseo Senda del Rey, 11
E-28040 Madrid
Spain
+ 34 91 398 63 32 (Phone)
+ 34 91 398 63 35 (Fax)

Simon Sosvilla-Rivero (Contact Author)

Complutense Institute for International Studies ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

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