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QUANTITATIVE ANALYSIS OF THE PRICE DISCOVERY IN THE NAFTA STOCK MARKETS

Stoyu I. Ivanov

San Jose State University, USA

ABSTRACT

In this study I extend the work of Chukwuogor-Ndu and Kasibhatla (2007) who document that the US, Canada and Mexico markets are cointegrated as a result of the North America Free Trade Agreement. I examine the question: what is the proportional contribution to the price discovery of these indexes based on their cointegration. In the international finance literature it is widely assumed that the US market provides the leadership. I find that the US is not always the dominant market in the price discovery when I examine five iShares Exchange Traded Funds which are simultaneously listed in Canada, Mexico and the United States. The ETFs that I use in this study are the iShares MSCI Brazil Index Fund, the iShares MSCI EAFE Index Fund, the iShares MSCI Emerging Markets Index Fund, the iShares COMEX Gold Trust and the iShares S&P 500 Index Fund. The US market is dominant only in the price formation of the Brazil and Gold ETFs whereas the leader in the price formation of the rest of the ETFs is the Canadian market.

Keywords: NAFTA, Cointegration, Price Discovery, Exchange Traded Funds

JEL codes: G13, G14