Stock market volatility spillovers and portfolio hedging: BRICS and the financial crisis |
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| Institution: | 1. Department of Shipping, Trade and Transport, School of Business Studies, University of the Aegean, 2A Korai str., 82100 Chios, Greece;2. Audencia Nantes School of Management, 8, Route de la Joneliere, BP 31222, 44312 Nantes, France;3. Department of Finance and Accounting, University of Tunis El Manar, B.P. 248, C.P. 2092, Tunis Cedex, Tunisia;1. University of Economics Ho Chi Minh City, 59C Nguyen Dinh Chieu Street, District 3, Ho Chi Minh City, Viet Nam;2. CFVG Ho Chi Minh City, 91 Ba Thang Hai Street, District 10, Ho Chi Minh City, Viet Nam;3. Australian College of Applied Psychology, Level 11, 255 Elizabeth Street, Sydney, New South Wales, 2000, Australia;4. School of Business, Western Sydney University, Locked Bag 1797, Penrith, New South Wales, 2751, Australia;1. IHEC of Sousse, B.P. 40, Route de la ceinture-Sahloul III, 4054 Sousse, Tunisia;2. IPAG LAB, IPAG Business School, 184, boulevard Saint-Germain, Paris 75006, France;3. Department of Business Administration, IQRA University, Karachi 75300, Pakistan;1. School of Economics and Finance, Massey University, QB 2.47, Albany, Auckland, New Zealand;2. Department of International Trade and Marketing, Gediz University, Izmir, Turkey;3. College of Business Administration, King Faisal University, PO Box 400, Al-Ahssa, Saudi Arabia;4. Department of Economics, East West University, Plot No-A/2, Aftabnagar Main Road, Dhaka 1219, Bangladesh;5. Fikra Research & Policy, PO Box 2664, Doha, Qatar;6. Department of Economics, Umm Al-Qura University, PO Box 715, Makkah, Saudi Arabia;1. Business School, Hunan University, Changsha 410082, China;2. Center of Finance and Investment Management, Hunan University, Changsha 410082, China;3. School of Business, East China University of Science and Technology, Shanghai 200237, China;4. Center for Polymer Studies and Department of Physics, Boston University, Boston, MA, 02215, USA |
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| Abstract: | The paper investigates the dynamic risk–return properties of the BRICS (Brazil, Russia, India, China, South Africa) capital markets and models potential time-varying correlations and volatility spillover effects with the US stock market. A VAR(1)–GARCH(1,1) framework contributes useful insight into US–BRICS market interactions and expands on a thin past empirical literature. A disaggregated approach pays attention to critical US–BRICS business sectors, namely the industrial and financial sectors. Significant return and volatility transmission dynamics are identified between the US and BRICS stock markets and business sectors. This is a critical input that can affect efficient global portfolio diversification and risk management strategies. Based on this empirical evidence, the study proceeds to assess effective portfolio hedge ratios and to construct optimal portfolio weights for diversified asset allocation to US–BRICS markets and business sectors. |
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