Testing volatility and relationship among BRICS stock market returns

Area of Science:

• * Financial Economics
• * Econometrics
• * International Finance

Background:

• * Emerging economies, particularly BRICS (Brazil, Russia, India, China, South Africa), are crucial for global economic growth.
• * The 2020 crisis highlighted significant volatility in BRICS stock markets, necessitating updated analysis.
• * Limited research exists on post-2020 BRICS stock market volatility and interrelationships.

Purpose of the Study:

• * To analyze stock market volatility within BRICS economies.
• * To investigate the interrelationships between BRICS stock markets.
• * To provide insights for investment risk management.

Main Methods:

• * Utilized daily stock market return data from November 18, 2019, to May 7, 2021.
• * Applied statistical tests including the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) family models.
• * Employed the Autoregressive Distributed Lag (ARDL) model to assess long-run and short-run relationships.

Main Results:

• * GARCH models identified volatility in the Russian and Indian stock markets.
• * EGARCH model indicated a leverage effect exclusively in the Indian stock market.
• * ARDL analysis confirmed long-run relationships between Russia and China, and India and South Africa.
• * Short-run dynamics were observed from Brazil to other BRICS markets, India to Brazil and South Africa, and South Africa to India.

Conclusions:

• * BRICS stock markets exhibit distinct volatility patterns and interdependencies.
• * The Indian stock market shows unique leverage effects.
• * Understanding these relationships is crucial for effective investment strategies.
• * Investors in BRICS markets should develop robust hedging plans to mitigate risks.