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Financial connectedness of BRICS and global sovereign bond markets

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  • Ahmad, Wasim
  • Mishra, Anil V.
  • Daly, Kevin J.

Abstract

The paper examines the financial connectedness via return and volatility spillovers between Brazil, Russia, India, China and South Africa (BRICS) and three global bond market indices represented by the United States of America (USA), European Monetary Union (EMU) and Japan for the period 01 January 1997 to 27 July 2016 (weekly data). We find that Russia followed by South Africa is the net transmitter of shocks within BRICS, implying that the risk arising from these markets may have an adverse impact on others in BRICS. However, China and India exhibit weak connectedness, suggesting that these markets may be useful for hedging and diversification opportunities in BRICS. The networks of pairwise spillover results further confirm this. Among global indices, China appears as highly interconnected with the USA. USA is the strongest transmitter of shocks to BRICS bond indices. The panel data results further confirm the significant determinants of net directional spillover. Thus, we can conclude that BRICS is a heterogeneous asset class even in the case of the bond market. India and China are the markets to look for better risk management strategies.

Suggested Citation

  • Ahmad, Wasim & Mishra, Anil V. & Daly, Kevin J., 2018. "Financial connectedness of BRICS and global sovereign bond markets," Emerging Markets Review, Elsevier, vol. 37(C), pages 1-16.
    • Handle: RePEc:eee:ememar:v:37:y:2018:i:c:p:1-16
    DOI: 10.1016/j.ememar.2018.02.006
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    More about this item

    Keywords

    BRICS; Emerging markets; Sovereign bond markets; Market linkages; Volatility spillover; Vector autoregression; Variance decomposition;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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