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Interdependence of NAFTA Capital Markets: A Minimum Variance Portfolio Approach

Author

Listed:
  • Francisco López-Herrera
  • Roberto J. Santillán-Salgado
  • Edgar Ortiz

Abstract

We estimate the long-run relationships among NAFTA capital market returns and then calculate the weights of a “time-varying minimum variance portfolio” that includes the Canadian, Mexican, and USA capital markets between March 2007 and March 2009, a period of intense turbulence in international markets. Our results suggest that the behavior of NAFTA market investors is not consistent with that of a theoretical “risk-averse” agent during periods of high uncertainty and may be either considered as irrational or attributed to a possible “home country bias”. This finding represents valuable information for portfolio managers and contributes to a better understanding of the nature of the markets in which they invest. It also has practical implications in the design of international portfolio investment policies. Key words: NAFTA, Stock markets, International diversification, Financial integration, Optimal portfolios.JEL: F36, F37, G01, G11, G15.

Suggested Citation

  • Francisco López-Herrera & Roberto J. Santillán-Salgado & Edgar Ortiz, 2014. "Interdependence of NAFTA Capital Markets: A Minimum Variance Portfolio Approach," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(6), pages 691-707.
    • Handle: RePEc:voj:journl:v:61:y:2014:i:6:p:691-707:id:490
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    More about this item

    Keywords

    NAFTA; Stock markets; International diversification; Financial integration; Optimal portfolios;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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