Vol. 5 Num. 3 - GCG: Revista de GlobalizaciÃ³n, Competitividad y ...

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Financial Integration in the Americas, Changing Geopolitics and Brazilian Foreign Policy24 It is difficult to discern any clear trends from the respective stock market performances. Acorrelation analysis will depend on the timeframe analysed. For example, it is well knownthat during times of global uncertainty, equity markets are more correlated3. A cointegrationanalysis will uncover long term trends in the data.Cointegration exists when a long-run relationship between the data sets can be identified.This identification is based on statistical probability or confidence levels. Figure 2 thenshows the increasing cointegration between Latin American countries and the US since1990. Canada, the UK and Europe have been added for reference. Notwithstanding thedisruption of the crisis from 2007, there is a clear trend towards cointegration. This graphshows the increasing effects of financial globalization with developed markets having moreadvanced integration but with all countries demonstrating a trend towards cointegratedfinancial markets.Figure 2: Cointegration. This shows the level each of country’s cointegration with the S&P 500 index.From a probabilistic viewpoint, we say that the countries are cointegrated when the graph falls belowthe critical valueThis increased cointegration may be, in part, due to the increased speed and liquidity ofmodern capital markets. It may also be due to the increased global reach of corporations.Whatever the reason, it is the clear, dispassionate view of the market that Latin Americaneconomies (and their associated regulatory/legislative controls) are falling into line with developedcountry norms.An impulse response refers to the reaction of any dynamic system in response to someexternal change. Mathematically, we can model a vector of country’s equity index values asa dynamic interdependent system. That is, based on historical data, we can create an at-3. The reasoning is that during periods of increased uncertainty (or volatility), investors and financial markets as a whole tend to be more sensitiveto news and therefore move with a “herd instinct”.GCG GEORGETOWN UNIVERSITY - UNIVERSIA SEPTIEMBRE-DICIEMBRE 2011 VOL. 5 NUM. 3 ISSN: 1988-7116pp: 16-29
Finbarr Murphy & Martin Mullisrest dynamic financial system. We can then perturb one of the financial indices and observe(at least in a mathematical sense) how the system will react. For our analysis, the impulseresponse describes the reaction of the system as a function of time. In other words, we examinehow the “disturbance” dissipates over time.25For example, Figure 3 below shows how the S&P would react to a one standard deviation(SD) change in its returns over the period 1990 to 1995. Most of the ‘shock’ is dissipated overa period of one day and the system return to normal. Figure 3 also shows that Canada immediatelyreacts to the US shock but it too returns to equilibrium quickly. There is a notablelack of reaction by Europe, the UK and Latin American countries. We can conclude that asrecently as twenty years ago, global financial markets were quite disassociated from eachother.Figure 3: Impulse Response to US perturbation, 1990-1995. Response of countries to a GeneralizedOne SD innovation in the S&P500 over 10 Days. From Sept-1990 to Sept 19951.00.80.60.4ARGENTINABRAZILCANADACHILEEUROPEMEXICOSANDPUK0.20.0-0.21 2 3 4 5 6 7 8 9 10Figure 4 shows how Brazil, Latin American country indices and the S&P 500 would respondto a 1-SD shock to the Brazilian index in the early nineties. Other than Brazil itself, other LatinAmerican countries take little notice and the S&P almost no notice at all.GCG GEORGETOWN UNIVERSITY - UNIVERSIA SEPTIEMBRE-DICIEMBRE 2011 VOL. 5 NUM. 3 ISSN: 1988-7116pp: 16-29
Page 1 and 2: Revista cuatrimestral Four-monthly
Page 4 and 5: SUMARIO SUMMARY SUMÁRIO12345678Fin
Page 6 and 7: StaffDe la Torre, José, Dean, Chap
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Page 16 and 17: 16Financial Integration in the Amer
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Page 30 and 31: 30Factores determinantes de lademan
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80authorBeatrizMinguela-Rata 1GIPTI
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Product innovation: An empirical st
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102autoresDaniel Hernández-Soto 1P
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