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Does global fear predict fear in BRICS stock markets? Evidence from a Bayesian Graphical Structural VAR model

Elie Bouri (), Rangan Gupta (), Seyedmehdi Hosseini and Chi Keung Lau

Emerging Markets Review, 2018, vol. 34, issue C, 124-142

Abstract: We examine the predictive power of implied volatility in the commodity and major developed stock markets for the implied volatility in individual BRICS stock markets. We use daily data from March 2011 to October 2016 and employ the newly developed Bayesian Graphical Structural Vector Autoregressive (BGSVAR) model of Ahelegbey et al. (2016). Evidence suggests that the predictability of individual implied volatilities in BRICS is generally a function of both global and within the group stock market implied volatilities, and that the role of commodity market volatility is marginal, except for South Africa. Important implications for policy-makers and portfolio-managers are discussed.

Keywords: Bayesian Graphical Structural VAR; Volatility predictability; Implied volatility index; VIX; Strategic commodities; BRICS (search for similar items in EconPapers)
JEL-codes: C32 G15 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:ememar:v:34:y:2018:i:c:p:124-142