Financial integration in emerging economies: an application of threshold cointegration

Ali Sajid, Rehman Mobeen Ur (), Syed Jawad Hussain Shahzad, Raza Naveed and Vinh Vo Xuan
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Ali Sajid: Faculty of Finance and Banking, Ton Duc Thang University, Ho Chi Minh City, Vietnam
Rehman Mobeen Ur: Institute of Business Research, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam
Raza Naveed: Department of Management Sciences, COMSATS University, Islamabad, Pakistan
Vinh Vo Xuan: Institute of Business Research, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam

Studies in Nonlinear Dynamics & Econometrics, 2021, vol. 25, issue 4, 213-228

Abstract: The asymmetric short – and long-run relationships between BRICS stock markets are examined using monthly stock price data from January 2001 through December 2014. The asymmetric co-integration analysis confirms the presence of a long-run association between the BRICS stock markets; where, the speed of adjustment to the negative shocks is higher and statistically significant for the Brazil-India and China-India pairs, which indicates quick adjustment of stock prices to bad news compared to good news. Conversely, the speed of adjustment for Indian and South African stock markets is higher for positive shocks, while the relationship between the stock markets pair of Russia and South Africa is linear. The results of asymmetric error correction model (AECM) reveal evidence of bidirectional causality between China-India, India-South Africa and South Africa-Russia, while unidirectional causality runs from the Indian to Brazilian stock market. Thus, we can safely conclude that the Indian stock market has long-run and short-run relationships with most of the other stock markets. This suggests that investors should pay attention to the Indian stock market when investing in BRICS stock markets.

Keywords: asymmetric cointegration; asymmetric error correction model (AECM); BRICS; stock markets (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1515/snde-2018-0093

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