Contagion evidency on Latin American financial markets : a cross-bicorrelation analysis

Abstract

In this paper, we use a cross bicorrelations test to study the relationship between the main seven Latin American financial market’s indexes. We find evidence of nonlinearity, for different window frames at a 97.5% level of confidence, over the period January 9, 1990 and November 23, 2012. Interestingly these evidence of nonlinearity was found in periods that coincide with periods of economic or political instability, such as the asian crisis on 1998, the financial crisis on 2008 and the Greek crisis on 2011. Furthermore, we find that in various cases the causality is bidirectional. We think this test could be used as a complementary tool to traditional tests used to study financial contagion. These findings are important cause they allow us to elaborate more on the existance of nonlinearity dependancy in markets caused by random events that could lead to contagion between countries on a same region.