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The Effects of the Subprime Crisis on the Latin American Financial Markets: An Empirical Assessment

Author

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  • Gilles Dufrénot

    (DEFI - Centre de recherche en développement économique et finance internationale - GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Valérie Mignon

    (CEPII - Centre d'études prospectives et d'informations internationales, EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Anne Peguin-Feissolle

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

The aim of this article is to answer the following question: can the considerable rise in the volatility of the LAC stock markets in the aftermath of the 2007/2008 crisis be explained by the worsening financial environment in the US markets? To this end, we rely on a time-varying transition probability Markov-switching model, in which "crisis" and "non-crisis" periods are identified endogenously. Using daily data from January 2004 to April 2009, our findings do not validate the "financial decoupling" hypothesis since we show that the financial stress in the US markets is transmitted to the LAC's stock market volatility, especially in Mexico.

Suggested Citation

  • Gilles Dufrénot & Valérie Mignon & Anne Peguin-Feissolle, 2011. "The Effects of the Subprime Crisis on the Latin American Financial Markets: An Empirical Assessment," Working Papers halshs-00587460, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00587460
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00587460
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    More about this item

    Keywords

    Stock markets; volatility; financial stress; regime-switching; Markov-switching model;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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