VOLATILITY CO-MOVEMENT AMONG LATIN AMERICAN STOCK EXCHANGES: BAD TIMES VS. GOOD TIMES

Abstract

This document compares volatility behavior among Latin American stock exchanges in two periods: crises times versus tranquil times. The purpose is to verify the level and direction of volatility movements among Latin American stock exchanges. The empirical results show that daily stock index returns are fat-tailed distributed, then the GARCH model was estimated under the assumption of standardized errors distributed as a student-t. The VAR system shows that IP&C, IPSA, IBOVESPA and Merval, are the more correlated stock exchanges. The volatility co-movement among these markets was stronger during crises times than tranquil ones, so volatility worked on both directions during bad times. It is conclude that volatility co-movement defined also as volatility contagion, can be classified as a contagion of the type of increasing correlation of shocks.