The impact of NAFTA on North American stock market linkages

•We consider if NAFTA increased financial integration among its members.•We employ a dynamic conditional correlation model allowing for a structural break.•We find increased integration between U.S. and Mexican equality markets.•We do not find increased integration between U.S. and Canadian equity markets.

Past research considered effects of trade or trade agreements on equity market linkages across countries. We investigate the impact of NAFTA on U.S., Canadian, and Mexican equity market linkages from December 1988 to July 2006. We employ a dynamic conditional correlation model to the stock markets of these three countries. We then test for the presence of a structural break coinciding with the NAFTA agreement. We find that NAFTA increased linkages between U.S. and Mexican equity markets and between Canadian and Mexican markets. No evidence arises of an impact of NAFTA on the linkages between U.S. and Canadian markets.