Interdependence of NAFTA capital markets: A minimum variance portfolio approach

• Published in: Panoeconomicus Vol. 61; no. 6; pp. 691 - 707
• Main Authors: López-Herrera, Francisco, Santillán-Salgado, Roberto J, Ortiz, Edgar
• Format: Journal Article
• Language: English
• Published: Novi Sad The Associations of Economists of Vojvodina 01.01.2014; Economists' Association of Vojvodina
• Subjects: Canada; Capital markets; Causality; Comparative analysis; Diversification; Economic crisis; Financial economics; financial integration; international diversification; International finance; Investment; Mexico; NAFTA; North American Free Trade Agreement; optimal portfolios; Portfolio investments; Portfolio management; Regression analysis; Risk aversion; Risk management; Securities markets; Stock exchange; Stock exchanges; stock markets; Studies; U.S.A; Canada; United States > US; Mexico
• ISSN: 1452-595X; 2217-2386
• DOI: 10.2298/PAN1406691L

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. nema