Equity market linkage and multinational trade accords: The case of NAFTA

Darrat, A. F. and Zhong, M. S. (2005) Equity market linkage and multinational trade accords: The case of NAFTA. Journal of International Money and Finance, 24 5: 793-817. doi:10.1016/j.jimonfin.2005.04.006

Author Darrat, A. F.
Zhong, M. S.
Title Equity market linkage and multinational trade accords: The case of NAFTA
Journal name Journal of International Money and Finance   Check publisher's open access policy
ISSN 0261-5606
Publication date 2005-09
Sub-type Article (original research)
DOI 10.1016/j.jimonfin.2005.04.006
Volume 24
Issue 5
Start page 793
End page 817
Total pages 25
Place of publication Exeter, U.K.
Publisher Elsevier Science
Collection year 2005
Language eng
Subject C1
350301 Finance
710401 Finance and investment services
Abstract This paper examines the impact of multinational trade accords on the degree of stock market linkage using NAFTA as a case study. Besides liberalizing trade among the U.S., Canada and Mexico, NAFTA has also sought to strengthen linkage among stock markets of these countries. If successful, this could lessen the appeal of asset diversification across the North American region and promote a higher degree of market efficiency. We assess the possible impact of NAFTA on market linkage using cross-correlations, multivariate price cointegrating systems, speed of convergence, and generalized variance decompositions of unexpected stock returns. The evidence proves robust and consistently indicates intensified equity market linkage since the NAFTA accord. The results also suggest that interdependent goods markets in the region are a primary reason behind the stronger equity market linkage observed in the post-NAFTA period. (c) 2005 Elsevier Ltd. All rights reserved.
Keyword Business, Finance
Equity market linkage
Speed of convergence
Long-run price equilibrium
Generalized variance decompositions
Impulse-response analysis
International stock markets
Cointegration analysis
Q-Index Code C1

Document type: Journal Article
Sub-type: Article (original research)
Collections: Excellence in Research Australia (ERA) - Collection
2006 Higher Education Research Data Collection
UQ Business School Publications
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Citation counts: TR Web of Science Citation Count  Cited 10 times in Thomson Reuters Web of Science Article | Citations
Scopus Citation Count Cited 21 times in Scopus Article | Citations
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Created: Wed, 15 Aug 2007, 05:23:36 EST