Chapter 2 Nonlinear Stock Market Links between Mexico and the World

Purpose – This chapter aims to investigate the stock market comovements between Mexico and the world capital market using nonlinear modeling tools. Methodology/approach – We apply recent nonlinear cointegration and nonlinear error correction models (NECMs) to investigate the comovements between stock prices over the recent period. Findings – While the previous literature only highlights some evidence of time-varying comovements, our chapter aims to specify the mechanism characterizing the comovement process through the comparison of two nonlinear error correction models (NECMs). It shows a nonlinear relationship between stock prices that are activated per regime. Originality – Studying the integration hypothesis between stock markets over the recent financial crisis, our findings highlight strong evidence of significant comovements that explain the global collapse of stock markets in 2008–2009.