Co-Movements of Latin American Equity Markets with the World’s Other Equity Markets: Global Portfolio Diversification Implications

Abstract

In this paper, we use the Principal Components Analysis (PCA) multivariate statistical technique to study the global portfolio diversification implications of the co-movements of six Latin American equity markets with the world’s other equity markets with data for the January 1, 2003-January 1, 2014 period. Earlier studies find low correlation between Latin American equity markets and the world’s other equity markets. Our empirical findings in this paper indicate that the correlation of Latin American equity markets with the world’s other equity market increased considerably. However, our PCA results indicate that global excellent portfolio diversification opportunities with Latin American equity markets still exist.