The evolution of stock market integration in the post-liberalization period – A look at Latin America

I use ADRs to examine if the equity markets of Argentina, Chile, and Mexico have become internationally integrated in the post-liberalization period and, if not, whether direct and/or indirect barriers are the cause of segmentation. In addition, I assess the evolution of the level of integration over time to determine if these markets are converging to or diverging from integration. I find that these markets have not become integrated. More revealing is that there is no secular trend towards greater integration. In fact, the Brazilian and Mexican currency crises temporarily increased the level of segmentation of Argentina and Chile, and appear to have had a more persistent effect on the level of integration of Mexico, as this market has become increasingly segmented in the post-crisis period. It appears that both direct and indirect barriers are responsible for the segmentation.