Small consequences of a major agreement: the MILA case

Purpose: The purpose of this paper is to provide evidence about the effects of the MILA agreement in terms of improving financial market efficiency. Design/methodology/approach: The authors measure efficiency by studying the stock reaction to earnings announcements using a conditional heteroscedasticity generalized autoregressive conditional heteroscedasticity-adjusted market model and the most commonly implemented event study tests for 3,399 events across four countries in the Latin American Integrated Market (MILA). Findings: Contrary to expectations, the results show that the MILA agreement has isolated gains in terms of reaction to corporate earnings announcements, which translates into partial improvements in market efficiency. However, the evidence indicates that the MILA agreement favored cointegration, which is in line with other studies. Practical implications: This paper provides evidence for policymakers and regulators that a stock market agreement is a condition that promotes market cointegration, but it is not an element that in itself ensures an improvement in market efficiency. To achieve greater MILA benefits, regulatory and market-level changes are required. Originality/value: This is the first study that analyses the effect of a stock market agreement on the efficiency of markets, expanding on what has been studied in the finance literature regarding the influence of these agreements on cointegration.