Stock markets and their relationship
with the real economy in Latin America
Samuel Brugger *and Edgar Ortiz **
Stock Market Activity and Development in Latin America

Unit Roots Analysis ( ...continuation )

Cointegration Analysis

If when applying Johansens model (Eq. 2, 3 and 4) the results and analysis in levels are ignored as the variables are not stationary, then the results are positive (Table 3). The trace test indicates that the null hypothesis is rejected. There are no cointegrating vectors. The trace statistic is greater than the critical values by 5%. In other words there are cointegrating vectors. Furthermore, where the trace test statistic is greater than the critical values, this indicates categorically that there is no more than one cointegrating vector. The results are similar to the maximum eigenvalue test. The maximum eigenvalue is 5% greater than the critical value; the inexistence of cointegrating vectors is rejected; and the eigenvalue confirms that there is no more than one cointegrating vector. In summary, according to Johansens test, stock market returns and the percentage changes in GDP maintain an equilibrium relationship in the long term in all four cases.