Download this Paper Open PDF in Browser

Equity Market Integration in the NAFTA Region: Evidence from Unit Root and Cointegration Tests

24 Pages Posted: 5 Jan 2005  

Raj Aggarwal

University of Akron; Federal Reserve Banks - Federal Reserve Bank of Cleveland

Nyo Nyo A. Kyaw

Kent State University - Department of Finance

Date Written: October 2004

Abstract

This study examines integration of the three participating equity markets before and after the 1993 passage of NAFTA based on daily, weekly, and monthly data for seven years before and after the passage of NAFTA (1988-2001). As expected, unit root tests for the overall period 1988-2001 and the two sub-periods, 1988-1993 (pre-NAFTA) and 1994-2001 (post-NAFTA), indicate that stock prices are non-stationary but stock returns are generally stationary for all three markets for all three periods. However, daily, weekly, and monthly equity prices in the three NAFTA countries are cointegrated only for the post-NAFTA period. Similarly, US stock prices are more integrated with both Canadian and Mexican stock prices after the passage of NAFTA. This evidence of increased financial integration and co-movement in NAFTA equity markets after the passage of NAFTA has important implications for policy makers and managers.

Keywords: NAFTA, Cointegration, Financial Market Integration

JEL Classification: F36, F15, G15

Suggested Citation

Aggarwal, Raj and Kyaw, Nyo Nyo A., Equity Market Integration in the NAFTA Region: Evidence from Unit Root and Cointegration Tests (October 2004). Available at SSRN: https://ssrn.com/abstract=642801 or http://dx.doi.org/10.2139/ssrn.642801

Raj Aggarwal (Contact Author)

University of Akron ( email )

Akron, OH 44325-4803
United States

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Nyo Nyo A. Kyaw

Kent State University - Department of Finance ( email )

College of Business Administration
P.O. Box 5190
Kent, OH 44242-0001
United States
330-672-1208 (Phone)
330-672-9806 (Fax)

Paper statistics

Downloads
220
Rank
116,169
Abstract Views
1,137