Abstract
Although, there is an apparent consensus about the contagion effects of the current US subprime crisis. However, the transmission and repercussions of US subprime crisis, as well as the nature of the transformation suffered by different economic sectors between the US and other markets are such empirical questions that have not been dealt with comprehensively, yet. In this paper, by utilizing the multivariate GARCH analysis of Engle and Kroner (1995) for which a BEKK representation is adopted, we examine the transmission of the US subprime crisis across BRIC financial markets. Moreover, to identify the extent of contagion, we also inspect the diffusion of US subprime crisis to BRIC equity markets financial and industrial sectors. We found interesting evidence of volatility spillovers from US financial sector to all the BRIC markets financial sectors both in the full sample and crisis period. Similarly, except Chinese industrial sector, we observe contagion effects from US to Brazilian, Russian and Indian equity markets industrial sectors. Our results exhibit direct linkage for both returns and volatility between the US equity market and the BRIC markets. Equity markets of Russia and India, however, were found hardly hit during the crisis period among the BRIC countries. Finally, we found no support for the decoupling view while investigating the fastest growing emerging markets, the BRIC countries.
Highlights
T he ongoing subprime crisis originated from the burst of real estate sector bubble in the United States appeared to be the most disastrous one for the financial houses, industrial growth and stock markets around the globe
This paper examines the transmission of the ongoing US subprime crisis to Brazil, Russia, India and China, representatives of the fastest growing emerging economies of the world, and investigates if, and to what extent, these emerging markets have been affected by the crisis, by analyzing their stock markets and industrial and financial sectors of their equity markets
In view of the fact that BRIC markets have strong links with the global economy through trade and financial channels; we examine the transmission of US subprime crisis to BRIC equity market’s financial and industrial sectors to identify the extent of contagion
Summary
T he ongoing subprime crisis originated from the burst of real estate sector bubble in the United States appeared to be the most disastrous one for the financial houses, industrial growth and stock markets around the globe. This paper examines the transmission of the ongoing US subprime crisis to Brazil, Russia, India and China, representatives of the fastest growing emerging economies of the world, and investigates if, and to what extent, these emerging markets have been affected by the crisis, by analyzing their stock markets and industrial and financial sectors of their equity markets.
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