Dynamic Connectedness among BRICS and Major Countries Stock Markets

Abstract

The present study examines the interaction of regional stock indices with developed countries' stock indices on stock markets of the Brazil, Russia, India, China, and South Africa (BRICS) countries. A total of 16 stock indices have been considered in this study. All daily data have been collected from August 2, 2002 to December 28, 2017 in terms of USD. The study period is subdivided into pre, during, and post‐global financial crisis periods. After ensuring the stationarity of the return series, the study employs Diebold and Yilmaz (2012) volatility spillover index to find the country having the net transmitter and net receiver of volatility. The study finds that the net volatility spillover has doubled during the crisis period, and it has come down to half in the post‐crisis period. The study depicts that in all the periods under study, the net volatility receivers are Brazil, Hong Kong, Germany, and Japan, whereas net volatility transmitters are South Africa, London, and the United States. The study also finds that China, Australia, Russia, and India are net volatility transmitters as well as net volatility receivers, depending on the crisis period. The result of this study may help the foreign portfolio investors to diversify their portfolio across BRICS countries.