Open AccessRegime Switches in the Tangency Portfolio of NAFTA Markets During the Financial Crisis
Author(s) -
Francisco López Herrera,
Roberto J. SantillánSalgado,
Fcpys-Unam Edgar Ortiz
Publication year - 2014
Publication title -
journal of international business and economics
Language(s) - English
Resource type - Journals
eISSN - 2374-2194
pISSN - 2374-2208
DOI - 10.15640/jibe.v2n3a5
Subject(s) - portfolio , financial crisis , stock exchange , financial economics , economics , stock market index , index (typography) , stock market , foreign portfolio investment , stock (firearms) , autoregressive conditional heteroskedasticity , financial market , market portfolio , foreign exchange market , monetary economics , exchange rate , finance , macroeconomics , geography , computer science , volatility (finance) , return on investment , context (archaeology) , open ended investment company , archaeology , production (economics) , world wide web
We study the composition of a Conditional Tangency Portfolio built with the Mexican Stock Exchange Index, the Canadian Stock Exchange Index, and the US Stock Exchange Index using a Multivariate GARCH-VCC model to compute conditional volatilities and correlations for the period March 9, 2007 to March 9, 2012. As macroeconomic stability and a more mature stock market have attracted an increasing volume of foreign portfolio investments into Mexico’s Stock Exchange, we document the impact of the recent Financial Crisis (2007-2009) on these flows. We compare the evolution of the Mexican market weights in the theoretically built Conditional Tangency Portfolio to the actual Foreign Portfolio Investment flows, and find that there were significant deviations which may be explained either by a “home bias” effect or by irrational behavior motivated by investors’ fears.
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