Author : Michael Adler
Publisher :
ISBN 13 :
Total Pages : 30 pages
Book Rating : 4.:/5 (129 download)
Book Synopsis Mexico's Integration into the North American Capital Market by : Michael Adler
Download or read book Mexico's Integration into the North American Capital Market written by Michael Adler and published by . This book was released on 2011 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore a model of time varying regional market integration that includes three factors, for the North American equity market, the local Mexican equity market and the peso/dollar exchange rate. We argue that a useful instrument for the degree of integration is the sovereign yield spread. Applying our methodology to Mexico over the 1991-2002 period, we show that the degree of market integration was higher at the end of the period than at the beginning but that it exhibited wide swings that were related to both global as well as local events. We also discover that Mexico's currency risk is priced. Further, the currency returns process reveals strongly significant asymmetric volatility that is strongly related to the asymmetric volatility of the Mexican equity market returns process. A plausible reason for these results is that currency devaluations in emerging markets like Mexico can cause default-risk crises in local banking systems that mismatch local-currency assets and hard currency liabilities, whereas appreciations produce no such problems. Devaluations that destabilize banking systems are therefore more likely than appreciations to increase the volatilities of both the currency's and the equity market's returns.