Economics and Finance Faculty Publications and Presentations
Document Type
Article
Publication Date
12-2017
Abstract
The identification of periods of price exuberance in equity markets is of great interest to policy makers and financial investors. In this paper, we identify financial bubble periods within the major equity markets in Latin America. We use the recently developed recursive Augmented Dickey-Fuller methods and propose similar recursive procedures based on Phillips-Perron. We find that conditional on bubbles in the S&P 500, there are strong links between bubble episodes across equity markets in Latin America. In addition, the financial bubble periods in Latin America begin earlier and last longer than bubble periods in the United States during the 2008 financial crisis. Price bubbles were identified prior to the establishment of the Integrated Latin American Market (MILA).
Highlights
- •We use the GSADF to identify bubbles in Latin American equity markets.
- •We proposed a new recursive procedure based on Phillips-Perron to identify bubbles.
- •We find price bubbles in five Latin American markets prior to the 2008 crisis.
- •We identify periods of price exuberance immediately prior to the start of the MILA.
- •We find strong links between bubble episodes across equity markets.
Recommended Citation
Escobari, Diego, Sergio Garcia, and Cristhian Mellado. "Identifying bubbles in Latin American equity markets: Phillips-Perron-based tests and linkages." Emerging Markets Review 33 (2017): 90-101. https://doi.org/10.1016/j.ememar.2017.09.001
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Publication Title
Emerging Markets Review
DOI
10.1016/j.ememar.2017.09.001
Comments
Original published version available at https://doi.org/10.1016/j.ememar.2017.09.001