The Spillover Effect of Global Uncertainty on BRICS Stock Markets
Abstract
Using monthly data spanning from 1993 to 2021 and employing
the DCC-GARCH model, this study examines the role of
Economic Policy Uncertainty (EPU) as a potential exogenous
factor impacting the correlation of Brazil, Russia, India, and
China (BRIC) economies’ stock markets, which is new to the
literature. Further, this dynamic correlation series is used as a
dependent variable while EPU of BRIC and USA is used as an
independent variable by utilizing the autoregressive distributed
lag (ARDL) model. The study finds a positive and significant
short-run as well as the long-run impact of Russia’s and the
US’s EPU on their stock markets. In other words, as the EPU
of the USA increases, the correlation of BRIC with the USA
Stock Market and the World Stock Market increases, suggesting
minimum diversification opportunities for the investors. The
study also recommends that investors diversify their portfolios
by considering cross borders assets avenues to gain maximum
returns and reduce portfolio risk.
JEL Classification: E44, C32, E52, E60, E62, C58
How to Cite:
Nawaz, A. D., Bhutto, N. A., & Khan, S. (2023). The Spillover Effect of Global Uncertainty on BRICS Stock Markets. Etikonomi, 22(1), 45–64. https://doi.org/10.15408/etk.v22i1.24617.
Keywords
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DOI: 10.15408/etk.v22i1.24617
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