Dynamic Global Linkages of the BRICS Stock Markets with the United States and Europe Under External Crisis Shocks: Implications for Portfolio Risk Forecasting

25 Pages Posted: 10 Nov 2016

See all articles by Shawkat M. Hammoudeh

Shawkat M. Hammoudeh

Montpellier Business School; Drexel University - Lebow College of Business

Sang Hoon Kang

Pusan National University

Duc Khuong Nguyen

IPAG Business School

Date Written: November 2016

Abstract

Crisis shocks often lead to changes in the interdependence across stock markets and thus affect risk assessment and management. This paper investigates the extent to which the global financial crisis of 2008–09, which was triggered by the US subprime crisis in 2007, and the European debt crisis that started at the end of 2009, affects the interdependence of the leading emerging markets of the BRICS countries with those of the United States and Europe. Our empirical analysis makes use of the FIAPARCH model combined with the Dynamic Equicorrelation (DECO‐FIAPARCH), which allows for the estimation of market linkage for a large group of countries as a whole, while controlling for asymmetric volatility and long memory. The results reveal the presence of important changes in the time‐varying linkages of the BRICS stock markets with the US and European ones. In particular, the average linkages have significantly been higher between 2007 and the first half of 2012 than the remaining part of the sample, and there is also evidence of a structural change around the Lehman Brothers collapse. We also show the effects of these stylised facts on portfolio risk assessment and forecasting.

Suggested Citation

Hammoudeh, Shawkat M. and Kang, Sang Hoon and Nguyen, Duc Khuong, Dynamic Global Linkages of the BRICS Stock Markets with the United States and Europe Under External Crisis Shocks: Implications for Portfolio Risk Forecasting (November 2016). The World Economy, Vol. 39, Issue 11, pp. 1703-1727, 2016. Available at SSRN: https://ssrn.com/abstract=2867197 or http://dx.doi.org/10.1111/twec.12433

Shawkat M. Hammoudeh (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Drexel University - Lebow College of Business ( email )

3141 Chestnut Street
Philadelphia, PA 19104
United States
2158956673 (Phone)
2158956975 (Fax)

HOME PAGE: http://faculty.lebow.drexel.edu/HammoudehS/

Sang Hoon Kang

Pusan National University ( email )

mulgeumup beomyeli
Pusan 609-735, 50612
Korea, Republic of (South Korea)

Duc Khuong Nguyen

IPAG Business School ( email )

184 BD Saint Germain
Paris, 75006
France

HOME PAGE: http://www.ipag.fr/en/

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