International market linkages and common volatility in emerging markets of Latin America

Abstract

This paper uses an ARCH framework to study stock market linkages in Latin American markets. We provide evidence that most markets exhibit ARCH effects even when multivariate information sets are incorporated. The correlations between Latin America with the US and developed markets have increased over time for all countries except Argentina. The linkages across Latin American countries also have strengthened. We also find that the volatility transmission between the US and Latin America has increased more recently. In contrast, the volatility transmission among Latin American countries has decreased. Overall our results reveal that Latin American financial markets are becoming more globalized and integrated not only with other countries in the region but also with developed markets.