چرخه بازار سهام، آزادسازی مالی و نوسانات

In this paper we analyze the cycles of the stock markets in four Latin American and two Asian countries, and we compare their characteristics. We divide our sample in two subperiods in order to account for differences induced by the financial liberalization processes of the early 1990s. We find that cycles in emerging countries tend to have shorter duration and larger amplitude and volatility than in developed countries. However, after financial liberalization Latin American stock markets have behaved more similarly to stock markets in developed countries whereas Asian countries have become more dissimilar. Concordance of cycles across markets has increased significantly over time, especially for Latin American countries after liberalization.

During the last decade the emerging markets have been characterized by a high degree of financial instability. This has been particularly the case in Latin America, where currency crises have become recurrent and where equity markets have experienced dramatic swings. Partially motivated by this instability, a number of authors have recently investigated the behavior of Latin American financial markets.1Fischer (2002), for example, has analyzed the implications of the Latin American currency crises for the future of the international monetary system. Eichengreen (2003), De Gregorio et al. (2000), and Edwards (1999) have investigated the role played by capital mobility in Latin America during the financial crises of 1990s. Goldstein (2003) has looked more specifically at the forces behind the financial turmoil in Brazil during 2002. Rigobon (2003) has focused on alternative volatility measures in both equity and bond markets in the period surrounding recent financial crises. Kaminsky and Reinhart (2002) have investigated how interest rates, equity returns and bond spreads behave in times of global financial stress. Their main interest was to analyze whether these variables exhibited co-movement across countries. Bekaert and Harvey (2000) analyzed equity returns in a group of emerging markets, including six Latin American countries, before and after the financial reforms. Edwards and Susmel (2003) investigated the time pattern of interest rate volatility in four Latin American countries, and compared them to that of Hong Kong. Other recent studies on financial volatility and contagion in the emerging markets, including Latin America, are Karolyi and Stulz, 1996, Janakiramanan and Lamba, 1998, Edwards, 2000, Eichengreen and Mody, 2000, Bekaert et al., 2002a, Bekaert et al., 2002b, Chakrabarti and Roll, 2002, Chen et al., 2002 and Forbes and Rigobon, 2002 and Bekaert et al. (2003). An important question, and one that we address in this paper, is whether stock markets have similar features in the emerging nations and in the advanced countries. The answer to this question is particularly germane to the current debate on the role of financial liberalization and macroeconomic instability in the emerging and transition economies. Some authors – including Krugman (2000) and Stiglitz (2002) – have argued that financial markets in emerging nations are poorly developed and thus they do not function properly – e.g. in the way that financial markets in advanced countries do. Under these circumstances, the argument goes, the emerging nations should not liberalize fully their capital markets; instead, they should impose some form of controls that regulate cross-border movements of portfolio capital. More specifically, in this paper we analyze stock market cycles in a group of Latin American countries: We investigate the characteristics of stock market cycles in Argentina, Brazil, Chile and Mexico during 1975–2001, and we focus on the behavior of “bear” and “bull” markets, as defined by Pagan and Sossounov (2003), among others: “Bull” and “bear” phases of stock markets are identified with periods of a generalized upward trend (positive returns) and periods of a generalized downward trend, respectively.2 We make a distinction between the pre- and post-financial reform periods of the 1980s and 1990s, and we concentrate on the following characteristics of stock market cycles: Duration, amplitude and volatility. In addition, we analyze the extent to which returns depart from a triangular representation, and we investigate the occurrence of big expansions and contractions. The results from this cycle analysis are then used to compare the behavior of these four Latin American equity markets with those of two Asian nations – South Korea and Thailand –, as well as with those of the US and Germany. The emerging stock markets analyzed in this paper – Argentina, Brazil, Chile, Mexico, South Korea and Thailand – represent a highly diverse sample: During the period under consideration they had different regulations regarding international capital mobility, different domestic supervisory systems and different exchange rate regimes.3 Moreover, all of them, with the exception of Chile, faced serious crises during the last few years. This diverse data set, then, allows us to investigate the behavior of bull and bear markets under different institutional settings and under different external environments. We are particularly interested in addressing the following questions: • Is it possible to (unequivocally) detect bull and bear markets in these Latin American and Asian countries? • Do bull and bear markets in emerging countries behave similarly to those in the more advanced nations? • Has stock market volatility been different across these countries? Has it changed through time? Is stock market volatility different in these countries than in the benchmarks represented by two advanced countries (the US and Germany)? • How do bear and bull market cycles compare across the emerging markets in our sample? What do these comparisons tell us – if anything – about the effects of financial liberalization? • Is it possible to explain the behavior of stock market cycles in our emerging markets using traditional models, including those in the “random walk” family? The rest of the paper is organized as follows: In Section 2 we present the methodology used to identify bull and bear markets. In Section 3 we discuss the results of our cycle analysis, and we conclude that bear and bull phases have behaved in a significantly different way in emerging and advanced countries, but the differences seem to diminish in the post-financial liberalization period. In Section 4 we deal with the issue of concordance or synchronicity of the cycles across countries. The main findings in this section point at an increased synchronicity of the stock markets in emerging countries, which move in a more parallel way during the 1990s than they did in earlier periods. Both the financial liberalization processes of the early 1990s and the financial crises of that decade seem to have contributed to this increased synchronicity. Section 5 complements the analysis in 3 and 4 by looking at a specific characteristic of the cycle that allows for formal significance tests on the shape, and some predictability features, of the cycle phases. Finally, in Section 6 we present a brief summary of the results and some concluding remarks regarding the directions for future research that our paper opens.

The possible consequences of financial liberalization processes in Latin America continue to be a subject of discussion and controversy. For some researchers, the alleged short term increase in instability may prevent countries from reaping the longer term gains.28 Consequently, the analysis of the medium term effects of financial opening and its relation with induced instability becomes a key aspect of the broad research project of understanding financial market transitions in emerging economics. In this paper we have analyzed some of the implications for stock market behavior of the financial liberalizations process in Latin America and Asia. In order to emphasize the medium term effects, our analysis is focused not on simple returns but on the cycles of the stock market, which characterize stock market behavior over longer periods. We analyzed the characteristics of market cycles – distinguishing the bull and bear phases – for four Latin American and two Asian countries. In addition to identifying the phases in the stock cycles we measured several characteristics of the phases: Duration,amplitude,volatility within the phase and the shape of the cycle. We placed special emphasis on the possible differences in behavior induced by the financial liberalization processes. We found that, while the characteristics of the cycles in emerging markets differ quite markedly from those in developed economies – namely, bull phases tend to be shorter, bear phases are longer, amplitude and volatility of both phases is significantly higher than in developed markets – the financial liberalization processes have contributed to making Latin American stock markets more similar to those in more developed economies. Latin American stock markets after liberalization are less unstable: Volatility is lower in both cycle phases and the amplitude of the phases has been significantly reduced, coming closer to that of developed countries. This is not the case, however, for Asian countries, that seem to have been affected too intensely by the financial crisis of 1997. There is evidence that these countries, especially Korea, are recovering their stability in the most recent years, but it is still early to assess the medium-term consequences – if any – of the crisis. We also calculated concordance indexes for the countries in the sample, in an attempt to detect whether the countries tend to be in the same phase of the stock market cycle or not, and whether there has been a tendency for this concordance to increase over time. We showed that the behavior pre- and post-financial reform has changed significantly, generally leading to a higher concordance of Latin American countries, which by the end of our sample period were in almost perfect synchronicity, and to a lower concordance of the Asian countries. These results are parallel, although some differences have been noted, to those based on correlations of returns. The analysis based on return correlations, however, is probably affected by short-term movements of the market and, given the significant presence of outlying returns during crisis periods, they tend to give a distorted picture of the me dium term evolution of the individual markets and of their concordance. An interesting corollary is obtained from the analysis of the shape of the cycle phases. Before financial liberalization, the shape of the cycles in Latin American and Asian countries revealed significant predictabilities, by which returns showed “acceleration” patterns depending on the closeness to the turning point – peak or trough. These patterns were more marked than those in developed economies, thus making the evolution of the stock market more predictable and signalling the possible existence of inefficiencies. After liberalization, the emerging markets exhibit a behavior much more similar to that in the developed countries: Even though bear phases still show some acceleration effect at the end of the phase – mostly a consequence of the financial crises of the late 1990s – the departures from what would be implied by statistical models of market evolution – and the departures from the behavior in developed economies – have been significantly reduced. Our analysis is a first step that opens up a broad and ambitious research program. Once the stock market cycles have been identified and analyzed in their own stance, several related questions arise. First, what is the relationship between real cycles and stock market cycles? Do recessions and expansions in emerging countries have similar characteristics as bull and bear markets across countries and with respect to the developed countries? Can the differing characteristics of emerging stock markets, and the changes in those characteristics, be traced to the real side? So far, little work has been done on real cycles in emerging countries, mostly due to the lack of adequate data. Second, our finding of increased synchronicity in emerging stock markets raises a causality question: Can the reasons be found in the real side of the economy – increased convergence of fundamentals, increased symmetry in exogeneous shocks – or is it merely a financial phenomenon – i.e., these countries just “look similar” to outside investors that can now enter the newly liberalized markets? This point raises the issue of whether emerging markets should indeed be considered as an “asset class” of their own. Third, our results suggest that future work would benefit from a deeper examination of the institutional aspects of emerging markets. Broad and potentially fruitful questions arise such as the relationship between stock market behavior and institutional depth and development – including both political and economic institutions – or the relationship between financial liberalization and other changes that emerging countries have gone through – trade liberalization or the privatization of specific productive sectors. Finally from the financial side, our results are important in the context of the literature of investment allocation and international risk diversification. The effects we have identified after liberalization of the markets – that is, after the markets be come increasingly available for outside investors – seem to provide relevant information for fund allocation. We have detected a higher synchronicity of emerging market behavior – which could translate into lower benefits of diversification across emerging countries – and also that returns and volatility both decrease with liberalization. These effects are likely to affect significantly the optimal allocation of investment funds. A related question concerns the relationship of emerging stock markets with world portfolios: Is this relationship different during bull and bear phases? If it is, then again optimal rules for fund allocation may be significantly affected. As one can see, a number of interesting questions remain unanswered. We believe that our analysis has given a first step in the direction of gaining a deeper understanding of the behavior of stock markets, although much exciting work remains to be done.