The comovements in international stock markets: new evidence from Latin American emerging countries

Mohamed El Hédi Arouri · Mondher Bellalah · Duc Khuong Nguyen

60 citations0/0 files storedApplied Economics Letters

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Abstract

We analyse the time variations in the comovements of Latin American stock markets. Conditional correlations are estimated from the dynamic conditional correlation GARCH model. Then, Bai and Perron's (2003) structural break technique is employed to test for changing nature of market comovements. Main findings are as follows. First, the degree of cross-market comovements changed over time and has significantly increased since 1994. However, room for international diversification still remains largely possible. Second, the comovements are subjected to various regime shifts, essentially due to major economic events. Finally, stock markets move much more together in times of crisis.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1969Investigating Causal Relations by Econometric Models and Cross-spectral Methods 1986Generalized autoregressive conditional heteroskedasticity 1982Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation 1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*1980Macroeconomics and Reality 2002Dynamic Conditional Correlation 1975THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETS**This paper is another in a series of interrelated theoretical and statistical studies of corporate financial and investment policies being made under grants from the Rockefeller Foundation, and more recently the Ford Foundation, to the Harvard Business School. The generous support for this work is most gratefully acknowledged. The author is also much indebted to his colleagues Professors Bishop, Christenson, Kahr, Raiffa, and (especially) Schlaifer, for extensive discussion and commentary on an earlier draft of this paper; but responsibility for any errors or imperfections remains strictly his own.[Professor Sharpe's paper, “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” (Journal of Finance, September 1964) appeared after this paper was in final form and on its way to the printers. My first section, which parallels the first half of his paper (with corresponding conclusions), sets the algebraic framework for sections II, III and VI, (which have no counterpart in his paper) and for section IV on the equilibrium prices of risk assets, concerning which our results differ significantly for reasons which will be explored elsewhere. Sharpe does not take up the capital budgeting problem developed in section V below.]

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