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Publication date

2022-12-14

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cc-by (c) Vega Baquero, Juan David et al., 2022
Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/192825

Capital flows in integrated capital markets: MILA case

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https://doi.org/10.3934/QFE.2022027

Abstract

The Feldstein Horioka1980 study on investment flows through the correlation of domestic saving and investment concluded that liberalization of capital markets does not necessarily lead to a movement of capital looking for a better allocation of resources, as classical theory would suggest. Ever since, literature has been prolific regarding this 'puzzle', with arguments for and against this conclusion. This paper aims to analyze the issue from a different perspective. In recent years, the stock markets of Chile, Colombia, Mexico and Peru joined the Latin American Integrated Market through an agreement that allows investors in any of the participating markets to invest in the others as if they were investing locally. Compositional methods are used to assess the hypothesis of a potential flow of capital between markets generated by the creation of the joint market. First, cross-sectional methods for compositional data were used to test the hypothesis. As a result, it was not possible to find a change in the composition of the investment in the four markets produced by the creation of the joint market. Secondly, vector autoregressive models were estimated and tested for structural breaks in the parameters. However, these models were not found to be informative. In conclusion, it was not possible to reject the Felstein-Horioka hypothesis, supporting the idea that liberalization is not enough to generate capital flows between markets

Subject

Diagrames de flux, Societats de crèdit i estalvi, Anàlisi de regressió, Capital

Subject (English)

Flow charts, Savings and loan associations, Regression analysis, Capital

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Articles publicats en revistes (Econometria, Estadística i Economia Aplicada)

Citation

VEGA BAQUERO, Juan David and SANTOLINO, Miguel. Capital flows in integrated capital markets: MILA case. Quantitative Finance and Economics. 2022. Vol. 6, num. 4, pags. 622-639. ISSN 2573-0134. [consulted: 13 of August of 2026]. Available at: https://hdl.handle.net/2445/192825

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