BRIC and the U.S. Financial Crisis: An Empirical Investigation of Stocks and Bonds Markets

Abstract

We examine empirical evidence of the behavior of stocks and bonds from BRIC nations using daily data from January 2003 to July 2010. We present unconditional and conditional empirical results depending upon a simple measure of U.S. financial stress. In the long term, BRIC bonds markets deviate much more from the U.S. financial stress measure than BRIC bonds and stocks deviate among themselves. Stocks and bonds returns correlations for Brazil and Russia are significantly large and negative. The own correlations are more important in determining the evolution of the conditional correlations relative to unexpected news. Dynamic conditional correlations between stock returns, bond returns and U.S. financial stress increase after the Lehman Brothers event in September 2008, except for bond returns in India.

Keywords: BRIC, stock-bond returns, conditional volatility, dynamic conditional correlation, financial crisis

JEL Classification: G01, G15