Sufficiency of response to changing risks of Latin American markets, as measured by the Argentina, Brazil, Chile, and Mexico markets, when compared to multiple risk factors

This paper evaluated the sufficiency or effectiveness of four Latin American stock Markets to respond to changing country risk assessments. The study evaluated the ability of the Argentina, Brazil, Chile, and Mexico stock markets to respond to periodic risk assessments from Political Risk Services, Business Enterprise Risk Intelligence and Institutional Investor.; The study collected results data from the years 1990 to 1998 and developed the Sharpe and Treynor performance measures for the markets in question. The calculated performance measures were compared to the country risk ratings from three different country risk rating organizations. These comparisons consisted of a series of correlation analysis including both parametric and non-parametric analysis. The findings showed there was no consistent and significant correlation between the returns experienced as measured by either the Sharpe performance or the Treynor performance measure and the country risk ratings. The returns were measured against those of the Latin American regional market as measured by the International Finance Corporation index of investable securities and the MSCI World Index from Morgan Stanley.; Although the Sharpe measure indicated the return is reasonably large and the Treynor measure normally indicated market performance provided sufficient return, there was no consistent significance between the returns experienced and the changing risk rating factors. This lack of correlation between the risk factors and the returns as measured using the Sharpe and Treynor performance measures results suggest investors do not receive a sufficient return to compensate for the additional risks associated with the environmental instability of emerging countries.