The Dynamics of BRICS's Country Risk Ratings and Stock Markets, U.S. Stock Market and Oil Price

Abstract:     
BRICS (Brazil, Russia, India, China and South Africa) are viewed currently as pillars of relative political, economic and financial stability, with the prospect of a major shift in future world power. The paper aims at investigating the relationships among the economic, financial and political country risk ratings of the BRICS and relating those risk factors to their respective national stock markets in the presence of representatives of the world’s major stock markets and oil market. It also examines the interrelationships among the national country financial risk ratings factors to discern transmission of the risk spectrum among the countries of this group because of the relevance of this information to investors, traders and policy makers. The results demonstrate that only the Chinese stock market is sensitive to all the factors. Financial risk ratings generally show more sensitivity than economic and political risk ratings, and political risk is sensitive to both financial and economic risk ratings. Among the five BRICS, Brazil shows special sensitivity to economic and financial risks, while Russia and China hold strong sensitivity to political risk and India demonstrates special sensitivity to higher oil prices. Among the global factors, oil price is more sensitive to economic than financial risk, while the S&P 500 reverses this relationship. The two American quantitative easings (QEs) affect BRICS differently.

Number of Pages in PDF File: 40

Keywords: risk, economic risk, political risk, risk ratings, stock market, ARDL

JEL Classification: D81, F23, G22, G31

working papers series