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Risk, Return and Performance of Latin America's Equity Markets, 1975-1995
Abstract
This paper examines the investment performance of Latin American equity markets from 1975 through mid-1995. Latin American equity markets have been among the most volatile in the world over the past twenty years. However, their low correlation with other markets has provided diversification benefits. These markets have low liquidity and are concentrated in a few securities. The currencies of Latin American markets have depreciated dramatically against the U.S. dollar. Nevertheless, the investment performance of these markets has been impressive: Their compound returns in U.S. dollar terms have exceeded those of the U.S. and of emerging markets in other regions of the globe.Este trabajo examina el desempeño de los mercados accionarios latinoamericanos desde diciembre de 1975 hasta junio de 1995. Estos mercados han tenido una de las volatilidades mas altas del mundo durante los veinte años examinados, sin emhargo sus bajas correlaciones con otros mercados han resultado en beneficios de diversificatión. En cada mercado el valor de la unidad monetaria local ha caido dramáticamente con respecto al dólar de Estados Unidos y también han existido problemas de liquidez. A pesar de ésto, el desempeño de los mercados accionarios en la región ha sido impresionante y sus rendimientos compuestos han superado los de los mercados de Estados Unidos y otras economías emergentes.Esse trabalho examina o desempenho do investimento no mercado de ações da America Latina entre 1975 até os meados de 1995. Os mercados de ações latino-americanos encontram se entre os mais voláteis do mundo nos últimos 20 anos. Entretanto, a sua baixa correlação com outros mercados apresentou beneficios para a diversificação. Esses mercados apresentam baixa liquidez e são concentrados em umas poucas ações. As moedas dos mercados Latinoamericanos depreciaram dramaticamente contra o dólar americano. Entretanto, o desempenho de investimentos nesses mercados tem sido impressionantes: o retorno composto em dólares americanos excederam os dos Estados Unidos e os dos mercados emergentes em outras partes do mundo.
... The poor performance of the Argentine and Brazilian markets combined with extreme volatility during the 1980s has been documented by Barry and Rodriguez (1998), among others. 5 The autocorrelation of the in¯ation adjusted series is roughly the same as the unadjusted series. ...
This study examines the potential profit of ten Variable Length Moving Average (VMA) technical trading rules in ten emerging equity markets in Latin America and Asia from January 1982 through April 1995. The average difference in buy − sell returns after trading costs for each rule and country are compared to a buy and hold strategy. Taiwan, Thailand and Mexico emerge as markets where technical trading strategies may be profitable. We find no strong evidence of profitability for the other markets. However, we find that 82 out of the 100 country–trading rule combinations tested in ten emerging markets, disregarding their statistical significance, correctly predict the direction of changes in the return series. These findings may provide investors with important asset allocation information.
... See, for instance, the works byAlford and Lustier (1996),Arshanapalli and Doukas (1996), andShachmurove (1996).2 SeeAggarwal and Schirm (1995),Avgustinous, Lonie, Power, and Sinclair (1997),Barry and Rodriguez (1998),Hartmann and Khambata (1993), andShachmurove (1998). Works on returns and international diversification to emerging stock markets also emphasize exchange rate issues. ...
Few studies on emerging markets have been devoted to examine the nature of their volatility. This work analyzes the time series characteristics of six major Latin American equity markets: Argentina, Brazil, Chile, Colombia, Mexico, and Venezuela. Non linear dependency and autoregressive conditional heterokedasticity are studied. The work includes several GARCH(p.q) models, including their exponential and GARCH-in-mean extensions. Weekly data for the 1989–1994 period from the International Financial Corporation is used. Not a single (G)ARCH model was found to depict volatility of these markets. Different models are more appropriate for each country. The best models seem adequate; the models reject autocorrelation, the distribution of the residuals is normal is all cases but one, the series are integrated, and heterokedasticity is rejected. The presence of heterokedasticity and autocorrelation in the major Latin American stock exchanges reflects their thinness and the presence of inefficiencies which reflect in time dependent high volatility.
... ence, Urrutia (1995), Ojah and Karemera (1999) Karemera et al. (1999) examined random walk behaviour in only four Latin American markets using just variance ratio tests, and while Haque's et al. (2001) analysis added another three markets, none of these studies employed data with a higher frequency than weekly or with a sample longer than a decade. Barry and Rodriguez (1997), Grieb and Reyes (1999), Soydemir (2000, 2001) and Curci et al. (2002) have examined Latin American stock markets from a similar perspective. ...
This note examines the weak-form market efficiency of Latin American equity markets. Daily returns for Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela are examined for random walks using serial correlation coefficient and runs tests, Augmented Dickey-Fuller (ADF), Phillips-Perron (PP) and Kwiatkowski, Phillips, Schmidt and Shin (KPSS) unit root tests and multiple variance ratio (MVR) tests. The results, which are in broad agreement across the approaches employed, indicate that none of the markets are characterised by random walks and hence are not weak-form efficient, even under some less stringent random walk criteria. Yes Yes
... ence, Urrutia (1995), Ojah and Karemera (1999) Karemera et al. (1999) examined random walk behaviour in only four Latin American markets using just variance ratio tests, and while Haque's et al. (2001) analysis added another three markets, none of these studies employed data with a higher frequency than weekly or with a sample longer than a decade. Barry and Rodriguez (1997), Grieb and Reyes (1999), Soydemir (2000, 2001) and Curci et al. (2002) To meet this deficiency, this note examines the random walk behaviour of seven Latin American stock markets (Argentina, Brazil, Chile, Columbia, Mexico, Peru and Venezuela) using daily data for up to a fifteen-year period and three sets of alternative, though complem ...
This note examines the weak-form market efficiency of Latin American equity markets. Daily returns for Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela are examined for random walks using serial correlation coefficient and runs tests, Augmented Dickey-Fuller (ADF), Phillips-Perron (PP) and Kwiatkowski, Phillips, Schmidt and Shin (KPSS) unit root tests and multiple variance ratio (MVR) tests. The results, which are in broad agreement across the approaches employed, indicate that none of the markets are characterised by random walks and hence are not weak-form efficient, even under some less stringent random walk criteria.
This studv investigates the stabilit);. volatility. risk premiums. and persistence
()(volatility in the standardi::ed /988-98 exchange-converted US. dollar equity returns of
Argentina. Bra::il. Chile. l'olumhia. Mexico. Peru. and r "ene::uela. All markets. except
Argentina. Colombia. and Mexico. have time-varying risk premiums. indicative of risk
aversion. and all markets have ARCH'GARCH effects. except r·ene::uela. which also ojfi?r
the best potential diversification gains because o( low correlation. This study also
investigates returns· predictability both in U.S. dollars and local currency. The
predictability results are nu\ed. with better results when using local currency.
The nonparametric runs test rejects weak form efficiency/or all markets. l'ene::uela and Chile
are not stahle. Residual kurtosis or fat tails are present in all markets: Argentina.
Colombia. and Peru have serial correlation: shocks to volatili(v are persistent rmlv in
Brccil. In general. Latin .lmerican emaging markets have shown remarkahle performance using
return to risk measures: predictahilitv seems mL.;ed: and the Latin American emaging markets
have volatility clustering with shocks that decay with time.
This paper seeks to investigate the short-run dynamics between five major Latin American stock markets (Argentina, Brazil, Chile, Colombia and Mexico). Unlike previous research on these markets, the joint distribution of stock returns is estimated as a vector autoregression (VAR) with innovations following an exponential GARCH process. Our study is carried out using closing stock market prices covering the period 25 May 1992 to 16 May 1997. The results revealed that these countries have significant first and second moment time dependencies. In general, the markets of these countries exhibit stronger volatility than mean spillovers. Further, our results indicate that these markets exhibit stronger volatility spillovers than other regions of the world. In view of these dependencies, the conditional correlations between these markets are different from their conventional simple counterparts. Since the correlation is the catalyst in portfolio diversification and an essential parameter in the calculation of the cost of capital, we anticipate that international investors and corporate managers will find our results very interesting.
The paper argues that, while a historical resume of Latin America since 1945 is made difficult by the sheer scope of the topic, the exercise can be useful, if only to counter short-term “amnesiac” assumptions. It divides the analysis into three sections; the economic, political and international. The first section, noting the significance of the pivotal decade of the 1940s, outlines the policies of import-substitution which have characterized much (not all) of Latin America since that decade, and describes their subsequent replacement by the current “neo-liberal” model. The second section tries to discern the political correlates of these contrasting economic models, arguing that, despite the wide variation in post-1945 political trajectories, the import substituting industrialization model tended to favour certain groups and contained the potential for durable social coalitions. While neo-liberalism similarly rewards its friends and punishes its enemies, its capacity to generate durable coalitions seems questionable; its association with democracy may be more contingent and cosmetic than often assumed; and the acclaimed “success” of certain neo-liberal leaders (Salinas, Fujimori, Menem) may depend on negative factors—weak opposition, the political pulverization of society—as much as any positive and enduring legitimacy. Finally, the paper locates US policy towards Latin America within a broad historical context, seeing the Cold War as an episode whose passing may presage less afresh, “pluralist” vision from the north, than a search for simple stereotypes with which to interpret a complex and sobering reality.
Latin America's two post-war development models have both required, but so far largely lacked, the institutional frameworks conducive to sustained growth, still less growth with equity. Understanding the reasons why the first model, import substituting industrialization, failed in terms of the political economy of the time is important for understanding the continuing institutional weaknesses and challenges facing the neo-liberal model, underlining the importance of the politics behind the evolution and functioning of those institutions.
This study extends the international evidence on initial public offerings (IPOs) and is the first comprehensive analysis examining new issues in the Latin American countries of Brazil, Chile, and Mexico. These countries have been among the best performing markets in the early 1990s and are undergoing major modernization programs and opening their economies. Since Chile uses an auction process to go public, while issues are offered at a fixed price in Brazil and Mexico, interesting comparisons based on the method of going public emerge. Further, both Chile and Mexico have been involved in massive privatization programs, and Brazil has embarked on one as well. A large proportion of the new issues in Chile were privatizations. This allows an examination of IPOs involved in privatization versus nonprivatization programs.
- Bekaert G.
- Sachs J.