The Predictability of Stock Market Volatility in Emerging Economies: Relative Roles of Local, Regional and Global Business Cycles

Elie Bouri (), Riza Demirer, Rangan Gupta and Xiaojin Sun

No 201938, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper explores the role of business cycle proxies, measured by the output gap at the global, regional and local levels, as potential predictors of stock market volatility in the emerging BRICS nations. We observe that the emerging BRICS nations display a rather heterogeneous pattern when it comes to the relative role of idiosyncratic factors as a predictor of stock market volatility. While domestic output gap is found to capture significant predictive information for India and China particularly, the business cycles associated with emerging economies and the world in general are strongly important for the BRIC countries and weakly for South Africa, especially in the post-global financial crisis era. The findings suggest that despite the increase in the financial integration of world capital markets, emerging economies can still bear significant exposures to idiosyncratic risk factors, an issue of high importance for the profitability of global diversification strategies.

Keywords: Stock Market Volatility; Business Cycles; BRICS; Forecasting (search for similar items in EconPapers)
JEL-codes: C22 C53 E32 G10 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2019-05
New Economics Papers: this item is included in nep-cis, nep-fmk and nep-mac
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Journal Article: The predictability of stock market volatility in emerging economies: Relative roles of local, regional, and global business cycles (2020)
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