Financial Contagion in the BRICS Stock Markets: An empirical analysis of the Lehman Brothers Collapse and European Sovereign Debt Crisis

Dirceu Pereira ()
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Dirceu Pereira: University of Minho

Journal of Economics and Financial Analysis, 2018, vol. 2, issue 1, 1-44

Abstract: This research analyzes and extends the study of contagion for BRICS emerging stock markets in the context of the last two international financial crises: the Lehman Brothers Bankruptcy Crisis and the European Sovereign Debt Crisis. We investigate changes in the relationship and the co-movements between BRICS markets in response to international shocks that are originated in advanced markets like USA and Europe. Employing data of daily stock market indices of BRICS countries, this research tests for contagion, examining the interactions and characteristics of price movements of BRICS stock markets by applying cointegration, causality and VECM/Gonzalo-Granger statistic and variance decomposition methodology on stock returns as a measure of perceived country risk. The results exhibit that both long-run and short-run relationships patterns exist between BRICS stock markets and have drastically changed during turbulent periods compared with tranquil period, pointing towards the occurrence of contagion phenomenon among BRICS markets during the last two crises. These findings also indicate that changes in the USA and the Euro Zone indices affect BRICS stock markets in the short-run, acting as a leading indicator for investing in BRICS markets. Also imply an increasing degree of global market integration, bringing major implications for portfolio diversification and policy makers.

Keywords: Financial Contagion; Financial Crises; VAR Models; BRICS Stock Markets; Cointegration; Causality. (search for similar items in EconPapers)
JEL-codes: G01 G11 G12 G15 G18 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:trp:01jefa:jefa0011

DOI: 10.1991/jefa.v2i1.a11

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