Interdependence of NAFTA Capital Markets: A Minimum Variance Portfolio Approach

Authors

  • Francisco López-Herrera Universidad Nacional Autónoma de México, Facultad de Contaduría y Administración, México
  • Roberto J. Santillán-Salgado Tecnológico de Monterrey, EGADE Business School, México
  • Edgar Ortiz Universidad Nacional Autónoma de México, Facultad de Ciencias Políticas y Sociales, México

DOI:

https://doi.org/10.2298/PAN1406691L

Keywords:

NAFTA, Stock markets, International diversification, Financial integration, Optimal portfolios

Abstract

We estimate the long-run relationships among NAFTA capital market returns and then calculate the weights of a “time-varying minimum variance portfolio” that includes the Canadian, Mexican, and USA capital markets between March 2007 and March 2009, a period of intense turbulence in international markets. Our results suggest that the behavior of NAFTA market investors is not consistent with that of a theoretical “risk-averse” agent during periods of high uncertainty and may be either considered as irrational or attributed to a possible “home country bias”. This finding represents valuable information for portfolio managers and contributes to a better understanding of the nature of the markets in which they invest. It also has practical implications in the design of international portfolio investment policies.

Key words: NAFTA, Stock markets, International diversification, Financial integration, Optimal portfolios.
JEL: F36, F37, G01, G11, G15.

Downloads

Download data is not yet available.

Downloads

Published

2014-12-15

How to Cite

López-Herrera, F., Santillán-Salgado, R. J., & Ortiz, E. (2014). Interdependence of NAFTA Capital Markets: A Minimum Variance Portfolio Approach. Panoeconomicus, 61(6), 691–707. https://doi.org/10.2298/PAN1406691L

Issue

Vol. 61 No. 6 (2014)

Section

Preliminary report