Connectivity between the Latin American and U.S. stock markets in the presence of the Covid-19 pandemic

Authors

DOI:

https://doi.org/10.5902/1983465969467

Keywords:

Stock markets, Dynamic connectedness, COVID-19 pandemic, TVP-VAR model, Latin American

Abstract

Objective - This paper aims to revisit the relationship between the Latin American and U.S. stock markets during the Covid-19 pandemic.

Methodology- The dynamic connectivity between these markets was estimated by implementing the time-varying VAR model (TVP-VAR) for daily data from January 2010 to June 2021.

Results - There are three main results. First, although spillovers from each market accounted for most of their variance, exchanges were not entirely independent of each other. Second, the U.S. and Brazil were net transmitters of spillovers, while Argentina and Chile were net receivers. Finally, the magnitude of net spillovers is not high enough to characterize a contagion effect.

Practical implications - The inclusion of Latin American stock markets in the scope of Covid-19 studies is an important contribution to the literature that often neglects Latin American markets in its samples.

Originality - The study of the connection between markets in the presence of Covid-19 differs from most that focus exclusively on the impact of Covid-19. Understanding the relationship between Latin American and U.S. markets in the presence of a crisis unlike any that has occurred before can help investors in their investment strategies and policymakers, governments, and monetary authorities interested in the integration or disintegration between markets.

Downloads

Download data is not yet available.

Author Biographies

Paulo Sergio Ceretta, Universidade Federal de Santa Maria

Possui graduação em Administração pela Universidade Federal de Santa Maria(1992), especialização em Estatistica e Modelagem Quantitativa pela Universidade Federal de Santa Maria(2008), mestrado em Engenharia de Produção pela Universidade Federal de Santa Maria(1995) e doutorado em Engenharia de Produção pela Universidade Federal de Santa Catarina(2001). Atualmente é PROFESSOR ASSOCIADO da Universidade Federal de Santa Maria, Revisor de projeto de fomento do Conselho Nacional de Desenvolvimento Científico e Tecnológico, Revisor de periódico da REAd. Revista Eletrônica de Administração, Revisor de periódico da Revista Brasileira de Finanças, Revisor de periódico da Revista de Ciências da Administração (CAD/UFSC), Revisor de periódico da Latin American Business Review (Binghamton), Revisor de periódico da Redes (Santa Cruz do Sul), Revisor de periódico da Custos e @gronegócio Online, Membro de corpo editorial da Sociais e Humanas, Revisor de periódico da RAM. Revista de Administração Mackenzie (Online), Revisor de periódico da Ciência Rural (UFSM. Impresso), Revisor de periódico da The Quarterly Review of Economics and Finance, Revisor de projeto de fomento da The United Arab Emirates University (UAEU; http://www.uaeu.ac.ae/en/), Membro de corpo editorial da Revista de Administração da UFSM e Membro de corpo editorial da RAM. Revista de Administração Mackenzie (Online). 

Vanessa Rabelo Dutra, Federal University of Pampa

Possui Doutorado em Administração pela Universidade Federal de Santa Maria (2020), mestrado em Administração pela Universidade Federal de Santa Maria (2007), especialista em administração financeira pela Universidade Federal do Rio Grande do Sul (2005) e graduação em Administração pela Universidade Federal de Santa Maria (2003). Atualmente é docente da Universidade Federal do Pampa. Atua principalmente em finança corporativas.

Paulo Fernando Marschner, Universidade Federal de Santa Maria

Possui graduação em Administração pela Universidade Estadual do Rio Grande do Sul (2016) e Mestrado em Administração/Finanças pela Universidade Federal de Santa Maria (2019). Atualmente é Doutorando em Administração/Finanças pela Universidade Federal de Santa Maria. Foi professor substituto no Instituto Federal Farroupilha Campus Júlio de Castilhos. Tem interesse nas áreas de economia e finanças comportamentais e mercado de capitais.

References

Akhtaruzzaman, M., Boubaker, S., & Sensoy, A. (2021). Financial contagion during COVID – 19 crisis. Finance Research Letters, 38(January), 1–20.

Alvarez, R. P., & Harris, P. R. (2020). Covid-19 in latin america: Challenges and opportunities. Revista Chilena de Pediatria, 91(2), 179–182. https://doi.org/10.32641/rchped.vi91i2.2157

Antonakakis, N., Gabauer, D., & Gupta, R. (2019). International monetary policy spillovers: Evidence from a time-varying parameter vector autoregression. International Review of Financial Analysis, 65(July), 101382. https://doi.org/10.1016/j.irfa.2019.101382

Ashraf, B. N. (2020). Stock markets’ reaction to COVID-19: Cases or fatalities? Research in International Business and Finance, 54, 101249. https://doi.org/10.1016/j.ribaf.2020.101249

Azimli, A. (2020). The impact of COVID-19 on the degree of dependence and structure of risk-return relationship: A quantile regression approach. Finance Research Letters, 36. https://doi.org/10.1016/j.frl.2020.101648

Bai, Y. (2014). Cross-border sentiment: An empirical analysis on EU stock markets. Applied Financial Economics, 24(4), 259–290. https://doi.org/10.1080/09603107.2013.864035

Baker, S. R., Bloom, N., Davis, S. J., & Terry, S. J. (2020). Covid-Induced Economic Uncertainty. Ssrn. https://doi.org/10.3386/w26983

Bekaert, G., Ehrmann, M., Fratzscher, M., & Mehl, A. (2011). Global Crises and Equity Market Contagion. ECB Working Paper Serices, 1381. Retrieved from https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1381.pdf

Bosch, J. C., Eckard, E. W., & Singal, V. (1998). The competitive impact of air crashes: Stock market evidence. Journal of Law and Economics, 41(2), 503–519. https://doi.org/10.1086/467399

Cardona, L., Gutiérrez, M., & Agudelo, D. A. (2017). Volatility transmission between US and Latin American stock markets: Testing the decoupling hypothesis. Research in International Business and Finance, 39, 115–127. https://doi.org/10.1016/j.ribaf.2016.07.008

Cavallo, E., Galiani, S., Noy, I., & Pantano, J. (2013). Catastrophic natural disasters and economic growth. Review of Economics and Statistics, 95(5), 1549–1561. https://doi.org/10.1162/REST_a_00413

Cepoi, C. O. (2020). Asymmetric dependence between stock market returns and news during COVID-19 financial turmoil. Finance Research Letters, 36, 101658. https://doi.org/10.1016/j.frl.2020.101658

Chuliá, H., Guillén, M., & Uribe, J. M. (2017). Spillovers from the United States to Latin American and G7 stock markets: A VAR quantile analysis. Emerging Markets Review, 31, 32–46. https://doi.org/10.1016/j.ememar.2017.01.001

Corbet, S., Hou, Y., Hu, Y., Lucey, B., & Oxley, L. (2021). Aye Corona! The contagion effects of being named Corona during the COVID-19 pandemic. Finance Research Letters, 38(May), 101591. https://doi.org/10.1016/j.frl.2020.101591

Davidson, S. N. (2020). Interdependence or contagion: A model switching approach with a focus on Latin America. Economic Modelling, 85(March), 166–197. https://doi.org/10.1016/j.econmod.2019.05.015

Dickey, D. A., & Fuller, W. A. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica, 49(4), 1057–1072.

Diebold, F. X., & Yilmaz, K. (2014). On the network topology of variance decompositions: Measuring the connectedness of financial firms. Journal of Econometrics, 182(1), 119–134. https://doi.org/10.1016/j.jeconom.2014.04.012

Dimitriou, D., Kenourgios, D., & Simos, T. (2013). Global financial crisis and emerging stock market contagion: A multivariate FIAPARCH-DCC approach. International Review of Financial Analysis, 30, 46–56. https://doi.org/10.1016/j.irfa.2013.05.008

Dornbusch, R. (1976). Expectations and Exchange Rate Dynamics. Journal of Political Economy, 84(61), 1167–1176. https://doi.org/10.1016/0261-5606(84)90029-9

Fan, V. Y., Jamison, D. T., & Summers, L. H. (2018). Pandemic risk: How large are the expected losses? Bulletin of the World Health Organization, 96(2), 129–134. https://doi.org/10.2471/BLT.17.199588

Goodell, J. W. (2020). COVID-19 and finance: Agendas for future research. Finance Research Letters, 35(April). https://doi.org/10.1016/j.frl.2020.101512

Guo, L., Ren, L., Yang, S., Xiao, M., Chang, D., Yang, F., … Wang, J. (2020). Profiling early humoral response to diagnose novel coronavirus disease (COVID-19). Clinical Infectious Diseases, 71(15), 778–785. https://doi.org/10.1093/cid/ciaa310

Hasan, M. B., Mahi, M., Hassan, M. K., & Bhuiyan, A. B. (2021). Impact of COVID-19 pandemic on stock markets: Conventional vs. Islamic indices using wavelet-based multi-timescales analysis. North American Journal of Economics and Finance, 58(February), 101504. https://doi.org/10.1016/j.najef.2021.101504

Karolyi, G. A., & Martell, R. (2011). Terrorism and the Stock Market. SSRN Electronic Journal, (June). https://doi.org/10.2139/ssrn.823465

King, M. A., & Wadhwani, S. (1990). Transmission of Volatility between Stock Markets. The Review of Financial Studies, 3(1), 5–33.

Koop, G., & Korobilis, D. (2014). A new index of financial conditions. European Economic Review, 71, 101–116. https://doi.org/10.1016/j.euroecorev.2014.07.002

Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root. How sure are we that economic time series have a unit root? Journal of Econometrics, 54(1–3), 159–178. https://doi.org/10.1016/0304-4076(92)90104-Y

Macciocchi, D., Lanini, S., Vairo, F., Zumla, A., Figueiredo, L. T. M., Lauria, F. N., … Ippolito, G. (2016). Short-term economic impact of the Zika virus outbreak. New Microbiologica, 39(4), 287–289.

Manzi, R. H. D., & Viola, E. (2020). A desaceleração da economia da China e a transição para um “novo normal” no século 21. Carta Internacional, 15(2), 5–27. https://doi.org/10.21530/ci.v15n2.2020.1018

Marçal, E. F., Pereira, P. L. V., Martin, D. M. L., & Nakamura, W. T. (2011). Evaluation of contagion or interdependence in the financial crises of Asia and Latin America, considering the macroeconomic fundamentals. Applied Economics, 43(19), 2365–2379. https://doi.org/10.1080/00036840903194204

Moretti, A. R., Vaz, B., & Mendes, D. M. (2005). Medindo a Influêencia do Mercado Americano nas Interdependêencias Observadas na América Latina. Revista Brasileira de Financ¸as, 3(1), 123–137.

Pesaran, H. H., & Shin, Y. (1998). Generalized impulse response analysis in linear multivariate models. Economics Letters, 58(1), 17–29. https://doi.org/10.1016/s0165-1765(98)00214-6

Pimenta, T. (2004). Uma mensuração do fenômeno da interdependência entre os principais mercados acionários da América Latina e a Nasdaq. Revista de Administração USP, 39(2), 177–185.

Ribeiro, A. L. P., & Hotta, L. K. (2013). An analysis of contagion among Asian countries using the canonical model of contagion. International Review of Financial Analysis, 29, 62–69. https://doi.org/10.1016/j.irfa.2013.03.014

Salisu, A. A., & Vo, X. V. (2020). Predicting stock returns in the presence of COVID-19 pandemic: The role of health news. Internacional Review of Financial Analysis, 70(January), 1–10.

Sharif, A., Aloui, C., & Yarovaya, L. (2020). COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach. International Review of Financial Analysis, 70(April), 101496. https://doi.org/10.1016/j.irfa.2020.101496

Silva, G. D. (2016). Efeito Spillover do crescimento dos principais pólos comerciais do mundo sobre as economias Sul-Americanas. Universidade Federal de Viçosa.

So, M. K. P., Chu, A. M. Y., & Chan, T. W. C. (2021). Impacts of the COVID-19 pandemic on financial market connectedness. Finance Research Letters, 38, 101864. https://doi.org/10.1016/j.frl.2020.101864

Yarovaya, L., Brzeszczynski, J., Goodell, J. W., Lucey, B., & Lau, C. (2020). Rethinking Financial Contagio: Information Transmission Mechanism during the COVID-19 pandemic.

Youssef, M., Mokni, K., & Ajmi, A. N. (2021). Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: does economic policy uncertainty matter? Financial Innovation, 7(1). https://doi.org/10.1186/s40854-021-00227-3

Zhang, D., Hu, M., & Ji, Q. (2020). Financial markets under the global pandemic of COVID-19. Finance Research Letters, 36(April), 101528. https://doi.org/10.1016/j.frl.2020.101528

Downloads

Published

2022-10-22

How to Cite

Ceretta, P. S., Dutra, V. R., & Marschner, P. F. (2022). Connectivity between the Latin American and U.S. stock markets in the presence of the Covid-19 pandemic. Revista De Administração Da UFSM, 15(3), 453–468. https://doi.org/10.5902/1983465969467

Issue

Vol. 15 No. 3 (2022): Jul-Sep

Section

Articles

License

Copyright (c) 2022 Revista de Administração da UFSM

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Authors of articles published by ReA/UFSM retain the copyright of their works, licensing them under the Creative Commons (CC-BY 4.0), which allows articles to be reused and distributed without restriction, provided that the original work is properly cited.

Most read articles by the same author(s)