New evidence on financial integration in Latin America

We revisit the financial interconnectedness in Latin America from 1993 to 2022 using Diebold-Yilmaz's (2012, 2014) approach in the generalized VAR framework. Full-sample and rolling-sample analyses reveal high and fluctuating cross-market linkages over time. Three notable periods of intense integration are identified: the first period coincides with the global financial crisis, the second with the Argentinian great depression, and the third encompasses two significant events, namely the COVID-19 pandemic and the Ukraine-Russia war, with the global financial crisis exerting the most pronounced influence. The Brazilian market is the most integrated among Latin American markets, while the Colombian market is the most segmented. These findings suggest limited diversification benefits during turbulent times and have practical implications for policymakers and international investors.