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Identifying Bubbles In Latin American Equity Markets: Phillips-Perron-Based Tests And Linkages, Diego Escobari, Sergio Garcia, Cristhian Mellado

Economics and Finance Faculty Publications and Presentations

The identification of periods of price exuberance in equity markets is of great interest to policy makers and financial investors. In this paper, we identify financial bubble periods within the major equity markets in Latin America. We use the recently developed recursive Augmented Dickey-Fuller methods and propose similar recursive procedures based on Phillips-Perron. We find that conditional on bubbles in the S&P 500, there are strong links between bubble episodes across equity markets in Latin America. In addition, the financial bubble periods in Latin America begin earlier and last longer than bubble periods in the United States during the 2008 …