Business Administration Faculty Publications

Long-run Equilibrium Shifts and Short-run Dynamics of National Stock Markets during Financial Crisis

Document Type

Article

Publication Date

2019

Journal Title

Academy of Economics and Finance Journal

ISSN

2693-4841

Volume

10

Issue

1

First Page

91

Last Page

102

Article Number

13

Abstract

I employ a vector error correction model to examine the interdependence between price stock indexes of NAFTA countries that have been segregated into tiers based on market capitalization. In each set of NAFTA countries (US – MEX; US – CAN; MEX – CAN), the returns of the tiered indexes reflect a long-run relationship within the same tier. Using a rolling vector error correction approach, I find a shift in the long run equilibrium during the most recent global financial crisis. The cointegrating parameter that ties the tiers together is greater in the absolute during the crisis period compared to the pre- and post-crisis periods. Despite showing that the stock indexes of the three NAFTA countries exhibit a cointegrating relationship, tests do not confirm that the relationship is the result of the NAFTA accord.

Keywords

Financial crisis, equilibrium, NAFTA, stock indexes, vector error correction

Link to Full Text

Share

COinS