International Financial US Linkages: Networks Theory and MS-VAR Analyses

• Published in: Revista mexicana de economía y finanzas = Mexican journal of economics and finance : REMEF 2019, Vol.14 (PNEA), p.459-484
• Main Authors: Sosa, Miriam, Ortiz, Edgar
• Format: Article
• Language: English
• Subjects: Business, Finance; Economics
• ISSN: 1665-5346; 2448-6795; 2448-6795
• DOI: 10.21919/remef.v14i0.418

This paper aims to examine the impact of the Global Financial Crisis on portfolio investment flows, as well as on stock market activity. Network Theory is used to analyze structural changes of foreign portfolio investment flows (FPI) to a sample of 13 developed countries and 6 emerging Latin American countries. Additionally, using daily data from 2003 to 2015, the dynamics of returns are analyzed to test whether the US market influenced these markets or vice versa; univariate (MS-AR) and multivariate (MS-VAR) regime-switching models are used. The evidence confirms the presence of two different regimes, low volatility and a high volatility for all markets. Findings suggest strengthening local productive and financial institutions in order to anchor FPI. The MS-(V)AR study is limited to stock markets from the Americas and Europe. Previous literature has not applied the innovative and complementary methodologies employed here to analyze financial crisis impacts on FPI flows. We conclude that US financial markets keep a close financial relationship with the most important European and American countries’ stock markets, both by receiving and delivering FPI, and in addition influencing the behavior of stock indexes.