Do European Stock Markets Affect Latin American Stock Markets?

In this study, we examine the response of Latin American stock markets to movements in European stock markets using VAR models. Our results vary depending on the openness of the country in terms of international trade. We find evidence that Latin American stock markets are responsive to changes in the stock market from Spain. Additionally, during the second and third subperiods, Spain has much stronger ties with Brazil, and this might explain why Brazil responds more to the shocks originating from Spain than from France. In conclusion, this study uncovers two important findings. First, Spain influences Latin American markets but these responses are not homogeneous across markets. Second, the influence of Spain has different magnitude in the three subperiods.