A Comparative Analysis of the Nature of Stock Return Volatility in BRICS and G7 Markets
Lorraine Muguto () and
Paul-Francois Muzindutsi ()
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Lorraine Muguto: School of Accounting, Economics and Finance, Westville Campus, University of KwaZulu-Natal, University Road, Westville, Private Bag X54001, Durban 4000, South Africa
Paul-Francois Muzindutsi: School of Accounting, Economics and Finance, Westville Campus, University of KwaZulu-Natal, University Road, Westville, Private Bag X54001, Durban 4000, South Africa
JRFM, 2022, vol. 15, issue 2, 1-27
Through globalization and financial market liberalization, the opening up of markets has increased cross-border investments as investors search for higher risk-adjusted returns. This ability to invest internationally has raised the attention given to emerging markets that offer higher risk-adjusted returns relative to developed markets. However, despite the growing importance of emerging markets, the literature on the nature of volatility in global markets is typified by generalizations of findings from developed markets. To fill this gap, this study comparatively examined the nature of stock return volatility in developed G7 and emerging BRICS markets. Broad market index data and GARCH models over the period 2003:01–2020:08 were employed. The study found evidence of volatility persistence, asymmetry, mean reversion and weak evidence of a risk premium in both emerging and developed markets. There was also evidence of significant differences in the nature of volatility within the two sets of markets. These volatility patterns in both groups cast doubt on the assertion that developed markets are more informationally efficient than emerging markets. Thus, markets in the same group may not always have the same nature of volatility, especially in the wake of structural events such as the COVID-19 global pandemic.
Keywords: volatility; persistence; asymmetry; mean reversion; risk–return; BRICS; G7; COVID-19 (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:15:y:2022:i:2:p:85-:d:752418
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