BRICS EXCHANGE RATES IN THE POST-FINANCIAL CRISIS: AN EMPIRICAL ANALYSIS

Abstract

ABSTRACT In this study, we have investigated the volatility of the exchange rate, the direction of spillover, and the long- and short-run relationships that exist in Brazil, Russia, India, China, and South Africa (BRICS). Further, we will look into how the BRICS economies' volatility is transmitted to one another so that investors can better manage risk and make prudent investment decisions. Understanding volatility transmission is an essential driver for constructing a diversified portfolio. We conducted the study using foreign exchange rate data from 2009 to 2019 for all BRICS economies covering the period after the financial crisis but before the outbreak of COVID 19. To obtain equilibrium relationship dynamics and the asymmetric effect of information in the market, we have applied the Johansen cointegration test, the pairwise Granger causality test, and the GARCH model. The study successfully analyzed long-term relationships and explained the direction of impact as well as volatility transmission in some market segments. We found significant volatility spillovers among the emerging markets that led to convergence between these economies. Within the BRICS economic bloc, Brazil has shown the highest number of associations with other members. Additionally, we discovered weak association between the selected economies. The findings of this study will provide insights into the behavior of exchange rates in the BRICS economies. Keywords BRICS, Foreign Exchange Rate, Cointegration, Granger Causality, Volatility.