Long-run Equilibrium Shifts and Short-run Dynamics of National Stock Markets during Financial Crisis
Academy of Economics and Finance Journal
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.
Financial crisis, equilibrium, NAFTA, stock indexes, vector error correction
Tarwater, John, "Long-run Equilibrium Shifts and Short-run Dynamics of National Stock Markets during Financial Crisis" (2019). Business Administration Faculty Publications. 193.