Cointegration, Causality And Price Discovery In The NAFTA Markets: A Study Of Sector Indices And Trade Flow Data From The Perspective Of US Markets
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This dissertation examines the long-run linkage among the equity markets and sectors of the NAFTA economies by employing Cointegration and Vector Error Correction Model (VECM) framework. In addition, I also seek to identify the short-run & long-run causality and the direction of adjustment factor among the sectors of the US, Canadian and Mexican markets. Furthermore, I develop a multivariate model to examine the long-run impact of exchange rates on the linkage among the NAFTA markets & sectors. In addition, I also investigate the impact of US trade flow on the causal relationship it has with that of the Canadian & Mexican markets and sector indices.My overall findings reflect existence of diversification opportunities in the NAFTA markets. However in many cases, I do find evidence of short-run and long-run linkage among the market & sectors of the US economy with that of the market & sectors of the Canadian and Mexican economies, thus, reflecting fewer diversification opportunities available across sectors. Additionally, I also find strong evidence of exchange rates having an influence over the long run relationship among the sectors and market indices of the NAFTA countries. Furthermore, I also discover evidence of short run causality between the US trade and the market and sector indices of Canada and Mexico.