Economic integration and stock market comovement in the Americas

Using daily returns from 1988 through 1999 for Argentina, Brazil, Chile, Mexico, and Canada, and from 1993 to 1999 for Colombia, Peru and Venezuela, we investigate to what degree these equity markets are integrated with the US equity market and examine the factors that affect the level of economic integration. We find a statistically significant high percentage of contemporaneous association between the eight equity markets of the Americas and the stock market in the United States. A high share of trade with the United States has a strong positive effect on stock market comovements. Conversely, increased bilateral exchange rate volatility and a higher ratio of stock market capitalization relative to that of the United States contribute to lower comovement.