Intra and inter-regional causal linkages of emerging stock markets: evidence from Asia and Latin America in and out of crises

This study examines the causal linkages among several emerging stock markets in Asia and Latin America since 1990. These markets experienced both rapid growth and major upheaval during the sample period, and thus, provide potentially rich information on the nature of cross-market interactions. Using daily observations of stock indices and the GARCH family of econometric models, we conduct the residual cross-correlation function tests to investigate cross-market causality both in the first and second moments of the stock returns. The empirical results reveal significant causal linkages both within each region and across the two regions. Further, our rolling test results indicate that the significance of the causality varies considerably over time. Importantly, we find that the causal linkages tend to strengthen particularly at the time of major financial crises. The empirical results also point to some imperative issues including inter-regional asymmetry in the causality and persistence of shocks on market linkages.