Abstract
No isolated financial markets are available due to global financial integration through trade liberation and FDI presence. Therefore, financial markets are subject to response to home economy events and pair economy movements. The study's motivation is to investigate the volatility transmission and interlinkage between financial markets in BRICS nations from January 01, 2001 to December 31, 2019. The study applies unit root tests, the test of cointegration, ARCH-GARCH effects, and the Non-granger causality test to expose interlinkages. Results of unit root tests expose variables are integrated in mixed order, i.e., few variables are stationary at a level I (0), and few variables are after first difference I (0). The cointegration test reveals the long-run association available in the empirical model, implying that the long-run BRICS stock markets act in the same direction. Results of ARCH-GARCH (1.1) disclose the presence of volatility persistence in the financial markets. Furthermore, the directional causality under the error correction term discloses that the feedback hypothesis explains the causality among financial markets in BRICS nations in the long run. On the other hand, a similar conclusion also derives from the Non-granger causality test.
Highlights
Market information and stock market volatility move in the same direction because information relating to the financial market causes market behaviour and investors' perception
Market performance exposes to international integration. It suggests that by increasing foreign participants in the host economy, either equity participation or/and long-run capital for industrialization, the financial market experiences development pressures in the economy eventually play a critical role in stock market behaviour
We investigate the possible interlinkages between Brazil, Russia, India, China, and South Africa stock returns, commonly known as BRICS nations see Table 1 Stock price indices of BRICS countries
Summary
Market information and stock market volatility move in the same direction because information relating to the financial market causes market behaviour and investors' perception. It suggests that by increasing foreign participants in the host economy, either equity participation or/and long-run capital for industrialization, the financial market experiences development pressures in the economy eventually play a critical role in stock market behaviour. A growing number of studies have been performed to expose the association between domestics and international financial markets; see, for instance, [4,5,6,7,8,9,10,11,12] Likewise, another line of interlinkage between the financial market and other domestic market segments is investigated in the empirical literature, see [13, 14].
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