Authors: Henry Aray
Addresses: Departamento de Teoria e Historia Economica, Universidad de Granada, Facultad de Ciencias Economicas y Empresariales, Campus de la Cartuja, S/N, 18011, Granada, Spain
Abstract: Using a simple Markov regime switching model, a time-varying measure of the effect of the return on a Latin American portfolio on the Spanish stock returns is obtained. The evidence can be summarised as follows. First, the effect is positive but not very large. However, it has increased since the mid-1990s. Second, evidence for the returns on size portfolios shows that most of the effect accrues indirectly through common risk factors. The portfolio comprising stocks with low capitalisation is affected most. Nevertheless, the relative effect of Latin America respect to the effect of the whole world only increases for the portfolio comprising stocks with high capitalisation since the mid-1990s. Third, evidence for the returns on sectoral portfolios shows that telecommunications and banking are affected most. Fourth, in relative terms, there is no clear relationship between β-risk and flows of foreign direct investment.
Keywords: Markov switching model; Spanish stock returns; foreign direct investment; FDI; Spain; Latin American portfolio; Spanish stock market.
International Journal of Financial Markets and Derivatives, 2010 Vol.1 No.3, pp.326 - 348
Published online: 30 Jul 2010 *Full-text access for editors Access for subscribers Purchase this article Comment on this article