Volatility Spillovers and Market Decoupling: Evidence from BRICS and China’s Green Sector

Darko B. Vuković (), Dmitrii Leonidovich Fefelov, Michael Frömmel and Elena Moiseevna Rogova
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Darko B. Vuković: Research Center for Market Efficiency and Applied Finance, Graduate School of Management, St. Petersburg State University, 1-3 Volkhovsky Pereulok, 199004 St. Petersburg, Russia
Dmitrii Leonidovich Fefelov: Research Center for Market Efficiency and Applied Finance, Graduate School of Management, St. Petersburg State University, 1-3 Volkhovsky Pereulok, 199004 St. Petersburg, Russia
Michael Frömmel: Department of Economics, Ghent University, Sint-Pietersplein 5, 9000 Gent, Belgium
Elena Moiseevna Rogova: Research Center for Market Efficiency and Applied Finance, Graduate School of Management, St. Petersburg State University, 1-3 Volkhovsky Pereulok, 199004 St. Petersburg, Russia

Risks, 2025, vol. 13, issue 11, 1-26

Abstract: The global economic importance of green tech is rising. Yet the role of the green financial sector in the propagation of volatility is still unclear. Although the existing literature often characterizes green assets as stable, the new risks, particularly US–China trade tensions that target the green sector directly, may uncover potential vulnerabilities. As China’s green sector has attained global leadership, its interconnections with other major economies require a closer examination, especially within the BRICS block. Applying the Bayesian VAR with Minnesota Ridge prior and a TVP-VAR model-based connectedness approach on a dataset of 1880 observations spanning from 2016 to 2025, we identified that volatility in China’s green sector peaked during the COVID-19 pandemic and resurged in early 2025 amid trade tensions. Uniquely, this study also finds that, despite the intensification of political and economic relations between BRICS members, the interconnectedness of their financial markets has been weakening, suggesting their long-term decoupling and regionalization. From 2016 to 2024, green indices remained historically peripheral, with limited, stable ties to the Nasdaq and SSE. In 2025, short shock-driven transmitter episodes have emerged and indicate an incipient integration rather than a permanent regime change.

Keywords: volatility spillovers; sustainable development; BRICS; BVAR; TVP-VAR (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2025
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