Working Paper: NBER ID: w9817
Authors: Sebastian Edwards; Javier Gomez Biscarri; Fernando Perez de Gracia
Abstract: In this paper we analyze the behavior of stock markets in six emerging countries. More specifically, we describe the bull and bear cycles of four Latin American and two Asian countries, comparing their characteristics during both phases and the degree of concordance of bullish periods. We divide our sample in two subperiods in order to account for differences induced by the financial liberalization processes that these countries went through in the early 1990's. We find that cycles in emerging countries tend to have shorter duration and larger amplitude and volatility than in developed countries. However, after financial liberalization Latin American stock markets have behaved more similarly to stock markets in developed countries whereas Asian countries have become more dissimilar. Concordance of cycles across markets has increased significantly over time, especially for Latin American countries after liberalization.
Keywords: Stock Market Cycles; Financial Liberalization; Volatility; Emerging Markets
JEL Codes: F30; C22; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial liberalization (F30) | Increased concordance among Latin American markets (N26) |
| Financial liberalization (F30) | Similar behavior of Latin American stock markets to developed countries (N26) |
| Emerging countries stock market cycles (E32) | Shorter durations (C41) |
| Emerging countries stock market cycles (E32) | Larger amplitudes (E32) |
| Emerging countries stock market cycles (E32) | Larger volatility (E32) |
| Post-financial liberalization (F65) | Increased synchronicity of stock market cycles in emerging markets (F44) |
| Financial liberalization (F30) | Diminished differences in stock market cycle characteristics between emerging and developed markets (F44) |