This study investigates the dynamic interdependence of the major stock markets in Latin America. Using data from 1995 to 2000, we examine the stock market indexes of Argentina, Brazil, Chile, Colombia, Mexico and Venezuela. The index level series are non-stationary and so we employ cointegration analysis and error correction vector autoregressions (VAR) techniques to model the interdependencies. We find that there is one cointegrating vector which appears to explain the dependencies in prices. The results are robust to sensitivity tests based on translating indexes to US dollars (i.e., a common currency for all the markets) and to partitioning the sample into periods before and after the Asian and Russian financial crises of 1997 and 1998, respectively. Our results suggest that the potential for diversifying risk by investing in different Latin American markets is limited.

Given the growth in the importance and popularity of share repurchases, we use an alternative time-series approach to test two hypotheses on the motives for share repurchases and dividends: the flexibility hypothesis and the substitution hypothesis. By investigating both share repurchase and dividend payout policies in the context of a time-series vector autoregression, we account for the dynamic and multi-dimensional nature of the two payout policies. We find that share repurchases are associated with temporary components of earnings, whereas dividends are not, and that share repurchases and dividends are imperfect substitutes.

We examine the impact of unionization on firms' tax aggressiveness. We find a negative association between firms' tax aggressiveness and union power and a decrease in tax aggressiveness after labor union election wins. This relation is consistent with labor unions influencing managers' in one, or both, of two ways: (1) constraining managers' ability to invest in tax aggressiveness through increased monitoring; or (2) decreasing returns to tax aggressiveness that arise from unions' rent seeking behavior. We also find preliminary evidence that the market expects these reductions around union elections and discounts firms that likely add shareholder value via aggressive tax strategies.

In the 1980s and early 1990s, the NASDAQ's success helped to prompt Singapore (SESDAQ), Japan (JASDAQ), Taiwan (TAISDAQ), and South Korea (KOSDAQ) to set up or formalize their own second board markets. In 1999, Malaysia (MESDAQ) and Hong Kong (GEM) followed suit. Given the growing importance of these second board markets, we examine whether there is any evidence of spillovers from NASDAQ returns and volatilities to Asian second board market returns and volatilities after controlling for spillovers from the NYSE, and whether these cross-country spillovers are strong relative to domestic spillovers from the corresponding main board markets. We employ EGARCH models, dynamic causality tests, and VAR-based forecast error decompositions using daily data of a recent sample period that includes the Asian financial crisis of 1997 and continues until April 20, 2001. There is strong evidence of lagged returns and volatility spillovers from the NASDAQ market to the Asian second board markets when we exclude contemporaneous main board market returns. There is also strong evidence of contemporaneous and lagged returns and volatility spillovers from the local main board markets to the corresponding second board markets. However, even in the presence of contemporaneous main board market returns, there are substantial spillovers from the lagged NASDAQ returns and volatilities to Asian second board market returns and volatilities. These findings are not sensitive to whether we use US dollar-based data or local currency-based data. Given the difference in the trading hours between the NASDAQ and Asian stock markets, we use available intra-day return data and Canadian return data. The findings seem quite robust: there is substantial information spillover from the NASDAQ to the Asian and Canadian second board markets. These findings indicate the existence of a substantial cross-country industry effect (or meteor shower effect), as well as a domestic market effect (or heat wave effect), and imply that both country diversification and industry diversification are important.