Re-examining stock market integration among BRICS countries

Journal article

Ouattara, BS (2017). Re-examining stock market integration among BRICS countries. Eurasian Journal of Economics and Finance. 5 (3), pp. 109-132.
AuthorsOuattara, BS

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.

KeywordsBRICS Stock Markets; Integration; ADF and PP Tests; JJ Cointegration Test; Granger Causality Test; VAR; Impulse Response Function; Variance Decomposition Analysis
JournalEurasian Journal of Economics and Finance
Journal citation5 (3), pp. 109-132
PublisherEurasian Publications
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Deposited30 Apr 2020
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