Co-movements of NAFTA stock markets: Granger‑causality analysis

Abstract

The paper scrutinizes the causal relationship between performance of American, Canadian and Mexican stock markets. It is aimed at answering the question as to whether there is a one way or two way causal link between the performance of stock markets (or possibly no causality at all) in the case of NAFTA members during 1992–1993 (pre-NAFTA period) and 1994–2013 (NAFTA in force). The study finds bivariate Granger causality for American and Canadian indexes in the periods: 1980–1988 and 1994–2013. Additionally the American index Granger-caused Mexican index during all the included periods, apart from 1992–1993, but the Canadian index did not Granger-cause the Mexican index at all. Moreover the Mexican index was a Granger-cause of the Canadian index in years 1994–2013 and a Granger-cause of the American index during period 1992–1993.