Analysis of stock volatility in Latin America

Abstract

As economies become more open to the rest of the world, they also become more vulnerable to economic crisis in other countries. This phenomenon is known as contagion. Using GARCH models this article investigates the presence volatility contagion Io Latin American stock index return from two economic-financial crisis that occurred in the last decade: Mexican crisis and Asian crisis - the results shown that only Brazil and Mexico —the Latin American countries with greater financial openness- suffered volatility contagion from the Asian crisis. Thus, these results permit to check that reduction of capital controls makes the economy more vulnerable.