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An analysis of stock markets integration and dynamics of volatility spillover in emerging nations

Imran Khan (Department of Humanities and Social Sciences, Birla Institute of Technology and Science Pilani – Dubai Campus, Dubai, United Arab Emirates)

Journal of Economic and Administrative Sciences

ISSN: 1026-4116

Article publication date: 15 March 2023

177

Abstract

Purpose

BRICS (Brazil, Russia, India, China, and South Africa) a group of five emerging nations that are expected to lead the global economy by the year 2050. The growth potential of these nations attracts investors from all over the world who are in search of maximizing the return on their investments and limiting the losses to the lowest possible level. The purpose of this research study is to determine whether or not Indian stock market investors can diversify their stock market portfolios into other BRICS economies.

Design/methodology/approach

A daily frequency of stock market closing data for the BRICS nations over a period of 2013–2021 has been considered and several econometric techniques have been applied. Starting with the Granger causality test for checking the direction of causality. The VAR technique is applied to find out whether the movement in the Indian stock market is influenced by its own past values or the past values of the other BRICS nations, and lastly, the DCC-MGARCH technique is applied to check the degree of integration or the volatility spillover from the Indian stock market to the stock markets of other BRICS nations.

Findings

The results of the study indicated that in both the short term and long term, stock market volatility is spilling over from the Indian stock market to the stock markets of other BRICS nations. Hence, the study suggests that BRICS nations cannot be a destination for portfolio diversification for Indian stock market investors.

Originality/value

The stock markets of emerging nations experience high volatility, which creates confusion for investors as to whether to invest or to abstain from portfolio diversification. At present, there is a gap in the existing literature to capture the stock market volatility of BRICS nations. This research study fills this research gap and confirms that BRICS nations cannot be a destination for portfolio diversification. Moreover, equity market experts, portfolio managers and researchers can all take advantage of this study.

Keywords

Acknowledgements

The author hereby confirms that he has not received any grants or funds for the writing or publication of this research article.

Funding: This is to confirm that the author has not received any financial assistance or funding in relation to this research paper.

Author's contribution: The author hereby confirms that he is the sole contributor of the whole manuscript.

Data availability statement: The datasets used and/or analyzed during the current investigation are accessible upon reasonable request from the corresponding author.

Declaration of interest statement: The authors whose names are listed immediately below certify that they have NO affiliations with or involvement in any organization or entity with any financial interest (such as honoraria; educational grants; participation in speakers' bureaus; membership, employment, consultancies, stock ownership, or other equity interest; and expert testimony or patent-licensing arrangements), or non-financial interest (such as personal or professional relationships, affiliations, knowledge or beliefs) in the subject matter or materials discussed in this manuscript.

Conflict of Interest: The author hereby states that he has no potential conflicts of interest about this research publication.

Citation

Khan, I. (2023), "An analysis of stock markets integration and dynamics of volatility spillover in emerging nations", Journal of Economic and Administrative Sciences, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JEAS-10-2022-0236

Publisher

:

Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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