A study of co-movements between USA and Latin American stock markets: a cross-bicorrelations perspective

TL;DR

This paper investigates nonlinear co-movements between the US and Latin American stock markets using cross-bicorrelation tests, identifying periods of dependence that often align with financial crises, indicating potential contagion effects.

Contribution

It applies the Brooks and Hinich cross-bicorrelation test to uncover nonlinear dependence periods, providing new insights into market interdependence during crises.

Findings

Identified windows of nonlinear dependence between US and Latin American markets.

Some dependence periods coincide with financial crises.

Evidence suggests possible contagion or interdependence effects.

Abstract

In this paper we use the Brooks and Hinich cross-bicorrelation test in order to uncover nonlinear dependence periods between USA Standard and Poor 500 (SP500), used as benchmark, and six Latin American stock markets indexes: Mexico (BMV), Brazil (BOVESPA), Chile (IPSA), Colombia (COLCAP), Peru (IGBVL) and Argentina (MERVAL). We have found windows of nonlinear dependence and co-movement between the SP500 and the Latin American stock markets, some of which coincide with periods of crisis, giving way to a possible contagion or interdependence interpretation.