Abstract
This paper examines whether the Latin American equity markets of Argentina, Brazil, Chile and Mexico have become more integrated with the US equity market. We empirically measure integration by finding the dynamic conditional correlation (DCC) between each market and that in the U.S. using a DCC multivariate GARCH model. We then track how these correlations evolve over time using a smooth transition model which can not only show when greater integration first occurs but also how long it takes these correlations to transition to their new levels. Our sample period stretches from December 30th, 1988 to March 26th, 2004. Results show an increase in the degree of market integration between these countries and the U.S. Moreover, we find that the beginning of rapid integration coincides with the beginning of economic liberalization for Argentina and Brazil. For Mexico and Chile we find that the period of rapid integration is within the period of increasing bilateral trade.