The evolution of stock market integration in the post-liberalization period – A look at Latin America

Hunter, Delroy M.

doi:10.1016/j.jimonfin.2006.06.001

Cited by 44 publications

(28 citation statements)

References 56 publications

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“…Most of the literature on financial integration has focused on developed economies. For Latin America previous work has either excluded the countries in MILA, studied long-run dynamics or has focused on the degree of integration with the United States (see e.g., Choudhry, 1997;Chen et al, 2002;Verma and Ozuna, 2005;Hunter, 2006;Panchenko and Wu, 2009;and El Hedi Arouri et al, 2010). Choudhry (1997) (2010) is similar to our study in the sense that they also estimate a dynamic correlation model for Latin American stock markets, but they do not assess the role of market integration.…”

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confidence: 74%

Virtual integration of financial markets: a dynamic correlation analysis of the creation of the Latin American Integrated Market

Mellado

Escobari²

2015

Applied Economics

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This paper investigates the role of virtual integration of financial markets on stock market return co-movements. In May of 2011 the Chilean, Colombian, and Peruvian stock markets virtually integrated their stock exchanges and central securities depositories to form the Latin American Integrated Market (MILA). We utilize the dynamic conditional correlation model propose by Engle (2002) to identify a statistically significant positive correlation between these markets.Moreover, we find strong evidence that the creation of the MILA increased the levels of dynamic correlation between stock returns. A higher correlation was also found during the dot-com bubble and the 2007 financial crises. Our results imply a decline in gains from international diversification by holding portfolios consisting of diverse stocks of these countries.

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confidence: 74%

Virtual integration of financial markets: a dynamic correlation analysis of the creation of the Latin American Integrated Market

Mellado

Escobari²

2015

Applied Economics

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“…De Jong and De Roon (2005) developed a factor asset pricing model and found that emerging stock markets have become more integrated with global stock markets. Hunter (2006) used a multivariate GARCH-in-Mean asset-pricing model on three Latin American markets: Argentina, Chile and Mexico. He found that these markets have not become integrated into global stock market in the decade after the liberalization.…”

Section: Literature Reviewmentioning

confidence: 99%

Global Financial Crisis and Stock Market Integration between Northeast Asia and Europe

Lee¹,

Jeong²

2014

RES

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This study examines the effect of financial crisis on the level of stock market integration. In particular, we investigated the dynamic movements of two regional stock markets, Northeast Asia and Europe during the period between January 1 st , 2000 and December 31 st , 2012, with particular attention placed on the global financial crisis (GFC). For this purpose, the paper employs various approaches including DCC-MGARCH, Risk Decomposition, GVAR, and CCOR models to ensure the robustness of empirical findings. The findings of this study are as follows. First, the Northeast Asian stock market remains independent from the European and global stock market movements during the sample period. Second, the European stock market shows an increasing trend of joint integration with Northeast Asian stock market. However, the level of integration is not economically significant. Third, the level of market integration between European and global stock markets had temporally increased during the GFC. However, the level returned to its pre-crisis level in the post-crisis era. The overall empirical evidence suggests that, for either European or global stock market portfolio, constructing a portfolio with Northeast Asian stock market would result in a more efficient portfolio. The results in this paper do not support the view of previous empirical studies which suggested the increased level of integration since the GFC. An increased integration is found to be only unique to the crisis period. In sum, the market integration is a dynamic process, and the financial crisis did not uniformly affect the level of stock market integration.

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“…This approach has frequently been used in earlier studies (e.g. Bekaert and Harvey, 1995;De Santis and Gérard, 1998;and Hunter, 2006).…”

Section: Risk Factorsmentioning

confidence: 99%

Global and Local Sources of Risk in Eastern European Emerging Stock Markets

Vaihekoski

Fedorova

2008

SSRN Journal

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IntroductionInternational investors and researchers have been drawn to emerging markets because of their rapid economic development, high returns, and potential for diversification as well as because of the series of reforms on these capital markets. The big challenges for researchers, in turn, have been devising ways to price risk and distinguish the roles of global and local sources of risk in these markets. Several empirical studies find market segmentation is typically larger in emerging markets than in developed markets, suggesting that local sources of risk are more critical than international sources (e.g. Korajczyk, 1995;Shackman, 2005). On the other hand, Bekaert and Harvey (1995), who test a two-factor asset-pricing model in which the conditional expected returns of a country are affected by global and local sources of risk, see evidence of a rising role for global sources of risk and a diminishing role for local risk sources.The more recent literature is mixed on the subject of financial integration. Tai (2006) and de Jong and de Roon (2005) claim markets become more integrated after equity market liberalization. Brooks and Del Negro (2002), on the other hand, note that Europe has become more integrated while elsewhere segmentation has lately increased. Some researchers see no evidence of increased integration over time (e.g. King and Segal, 2008).Most papers on currency risk in emerging markets conclude that it is priced on stock markets (e.g. De Santis and Imrohoroglu, 1997; Tai, 2006; Saleem and Vaihe-* The authors are grateful to the anonymous referees for their comments, which greatly improved the paper. They would also like to thank Niklas Ahlgren, Iikka Korhonen and Timo Rothovius and other participants at the GSF Winter Workshop and at the Bank of Finland Research Seminar for their helpful comments and insights.

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The evolution of stock market integration in the post-liberalization period – A look at Latin America

Cited by 44 publications

References 56 publications

Virtual integration of financial markets: a dynamic correlation analysis of the creation of the Latin American Integrated Market

Virtual integration of financial markets: a dynamic correlation analysis of the creation of the Latin American Integrated Market

Global Financial Crisis and Stock Market Integration between Northeast Asia and Europe

Global and Local Sources of Risk in Eastern European Emerging Stock Markets

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