A wavelet analysis of capital markets’ integration in Latin America

Abstract

The continuous wavelet transform analysis may provide a rich and flexible framework for the analysis of time series which exhibit less stable statistical properties, such as the ones describing the dynamic trajectory of capital markets. In contrast to the Fourier analysis, wavelet transform preserves information on both time and frequency. We provide a summary of the most important features of this framework. By involving the concept of coherence as well as its partial and multiple forms, we analyse the connections between Santiago Stock Exchange, Mexican Stock Exchange and BM&FBOVESPA São Paulo Stock Exchange, for a time span which covers the 23 September 2003–12 March 2014 period. We highlight the existence of several significant forces of regional integration and of a short- to medium-run synchronization process between these markets. We conclude that deeper structural and institutional reforms are required in order to enhance the sustainable development and more profound integration of these markets.

Keywords:

• continuous wavelet transform
• wavelet coherency
• partial wavelet coherency
• multiple wavelet coherency
• Latin America capital markets

JEL Classification:

• C32
• C49
• G15
• F37