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Trade Agreements and Financial Market Integration in Latin America and the US

Author

Listed:
  • Obed Fernando Izaguirre

    (Optum, 11000 Optum Circle, Eden Prairie, MN 55344, USA)

  • Seungho Shin

    (Francis J. Noonan School of Business, Engineering and Innovation, Loras College, Dubuque, IA 52001, USA)

  • Duygu Zirek

    (Feliciano School of Business, Montclair State University, Montclair, NJ 07043, USA)

Abstract

The primary objective of this study is to examine the extent of financial integration between Latin American and US financial markets, particularly in light of recent efforts to foster integration through trade agreements. Spanning from 1 January 1990 to 31 December 2019, the sample focuses on major market indices and key sectors. Financial integration is quantified using a DCC multivariate GARCH model, incorporating a smooth transition model, structural breaks, and regression-based approaches. Results indicate increased comovement with the US for main market indices in Argentina, Chile, Colombia, Mexico, and Peru, while Brazil shows a decrease. Similar trends are observed in sectoral analyses. This study also reveals heightened correlation post-trade agreements. Structural break analysis highlights significant shifts in dynamic correlations for countries with US free trade agreements. These findings support the argument of increased financial integration, bearing significance for portfolio diversification and international policy formulation.

Suggested Citation

  • Obed Fernando Izaguirre & Seungho Shin & Duygu Zirek, 2024. "Trade Agreements and Financial Market Integration in Latin America and the US," JRFM, MDPI, vol. 17(3), pages 1-26, March.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:3:p:126-:d:1360744
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    References listed on IDEAS

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    1. Bekaert, Geert & Harvey, Campbell R, 1995. "Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-444, June.
    2. Longin, Francois & Solnik, Bruno, 1995. "Is the correlation in international equity returns constant: 1960-1990?," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 3-26, February.
    3. Lim, Eun Son & Breuer, Janice Boucher, 2019. "Free trade agreements and market integration: Evidence from South Korea," Journal of International Money and Finance, Elsevier, vol. 90(C), pages 241-256.
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