Re-Examining Stock Market Integration Among Brics Countries

Abstract

The main goal of this paper is to contribute to the international investment decision making process among the BRICS countries and to the development or changes of policies in response to the dynamics in these countries. The background is important for international investors seeking diversification benefits abroad and for policy makers reacting to the developments in the aforementioned economies. Thus, the context of this paper is directed to the examination of the stock market interaction among the BRICS countries. The objective of this research paper is to analyze the existence of the short-term linkages and long-term cointegration among the BRICS markets. Augmented Dicker-Fuller (ADF) and Philips-Perron tests (PP) are used to analyze stationarity among the selected variables. The research applies the correlation test on the stock markets returns to investigate the degree of freedom existing among the markets. The long run and the short run are also investigated using Johansen cointegration test while the Pairwise Granger Causality and the Wald tests are applied to assess the direction of the causality between the stock market indices. The study also extends the investigation by employing the impulse response function and variance decomposition to evaluate the reaction of each stock to a shock from other stock indices. The quarterly data consisted of fifteen years from 2000 to 2015 and are exclusively composed of stock market index of selected countries. One of the key findings of the research is that the Chinese stock markets are mostly independent from other BRICS markets, implying diversification benefits for the international investors both in the short and the long run. Another important finding is that the BRICS stock markets are not cointegrated in the long run, thus, being a favorable destination for the long-term investments.

The impact of BRICS formation on portfolio diversification: Empirical evidence from pre- and post-formation eras

“…More recently, Ouattara (2017) examined the short-term linkages and the long-term cointegration level among the BRICS stock markets over the period from 2000 to 2015 using quarterly data. This study used the Augmented Dicker-Fuller (ADF) and Philips-Perron (PP) tests to analyze stationarity among the selected variables.…”

Dynamic links between the Nigerian equity market and those of selected regional and developed countries

“…Empirical studies that have examined stock market inter-linkages in other climes include but are not limited to Diebold and Yilmaz (2009) , Dasgupta (2014) , Maher et al. (2017) , Lean and Smyth (2014) , Ouattara (2017) , Sahar and Shah (2017) , Polanco-Martinez et al. (2018) , and Ahmad et al.…”

“… Ouattara (2017) examined the integration of emerging stock markets of the BRICS countries using quarterly data from 2000-2015. The Johansen cointegration, VAR Granger causality/wald test, correlation, IRF and the VDA were employed to examine the long-run and short-run dynamics between the markets.…”

Harmonization of tax and financial systems within BRICS

“…Otherwise, there is a risk of lack of profitability for any foreign economic activity. However, in modern conditions, transactions between entrepreneurs are quite complex in their form (Ouattara, 2017). States often define their legal nature differently and interpret and apply bilateral tax agreements in different ways.…”