Return and volatility spillovers among stock markets: BRICS countries experience

Abstract

This study examines the spillovers among stock markets for Brazil, Russia, India, China and South Africa (BRICS). We consider daily data for BRICS countries from 26 June 2002 to 31 July 2014 with 2,866 observations. We first test the stationarity of data series, employ VAR Granger causality test among stock indices to capture return spillover effect and to proceed we employ exponential generalised autoregressive conditional heteroscadasticity (EGARCH) model to capture the volatility spillover effect as well as asymmetric spillover effect. We find the presence of bidirectional and unidirectional return spillover and negative news impacts more on volatility of these countries' stock markets. Further, we find diversification does not give any economic value from India, Russia and Brazil stock markets to China stock market. The knowledge of transformation of information from one market to another market helps to develop hedging strategy, finds diversification opportunities and captures the efficiency of the market.