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Stock market interlinkages among the BRIC economies

Author

Listed:
  • Shalini Aggarwal
  • Abhay Raja

Abstract

Purpose - This paper aims to study the co-integration among the stock markets of BRIC nations of Brazil, Russia, Indian and China to analyze if the series move apart or they move together in the long term. and to examine the implied volatility transmission between the Indian implied volatility index and three international indices and vice-versa by using synchronized daily data by using techniques such as generalized impulse response functions and variance decompositions. More specifically, the authors investigate how shock to one volatility index affects another volatility index and what is the magnitude and sign of affect and how long does the effect persist? Design/methodology/approach - Unit root tests are conducted to determine the order of integration for each index. The cointegration analysis is used to evaluate the co-movement of a long-term equilibrium relationship among the four stock market indices. Variance decomposition test helps to explain that how much movement in the dependent variable is explained due to its own shock vis-a-vis to the shock of other variables under the study. Impulse response function is used to find out the impact of the standard deviation of shock given to one variable on the impact on the other variable. Findings - There exists one long-run cointegrating relationship between the four stock markets under study. The coefficient of VECM is −0.00031 which is negative and highly significant at 1 per cent. This confirms the existence of a stable long-run causal relationship between the variables. Variance decomposition shows that indices of Brazil, China and Russia can explain on average 4, 0.5 and 5 per cent, respectively, of the forecast error variance of Indian index. On the other hand, Indian market can explain on an average 6.7, 5 and 3 per cent of the forecast error of Brazilian, Chinese and Russian markets, respectively. Originality/value - The research paper is an original work of the author.

Suggested Citation

  • Shalini Aggarwal & Abhay Raja, 2018. "Stock market interlinkages among the BRIC economies," International Journal of Ethics and Systems, Emerald Group Publishing Limited, vol. 35(1), pages 59-74, November.
  • Handle: RePEc:eme:ijoesp:ijoes-04-2018-0064
    DOI: 10.1108/IJOES-04-2018-0064
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    Citations

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    Cited by:

    1. Tom JACOB & LITTLEFLOWER P. J, 2022. "Cointegration and stock market interdependence: Evidence from India and selected Asian and African stock markets," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(633), W), pages 133-146, Winter.
    2. Moinak Maiti & Darko Vukovic & Yaroslav Vyklyuk & Zoran Grubisic, 2022. "BRICS Capital Markets Co-Movement Analysis and Forecasting," Risks, MDPI, vol. 10(5), pages 1-13, April.
    3. Sahabuddin, Mohammad & Muhammad, Junaina & Yahya, Mohamed Hisham & Mohammed Shah, Sabarina, 2020. "Co-movements between Islamic and Conventional Stock Markets: An Empirical Evidence," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(3), pages 27-40.

    More about this item

    Keywords

    BRIC; Impulse response; Vector error correction model; Johansen cointegration; G1; G15; N25;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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