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Linkages Between the Foreign Exchange Markets of BRIC Countries—Brazil, Russia, India and China—and the USA

Author

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  • Ramya Rajajagadeesan Aroul
  • Peggy E. Swanson

Abstract

The past decade has witnessed increasing trade and capital flow movements between BRIC countries (Brazil, Russia, India and China) and the USA indicating a need for a better understanding of currency linkages between these countries. This article examines long-run and short-run relationships between foreign exchange markets of BRIC countries and the USA. Long-run results indicate that, over a period beginning January 2000 and ending November 2013, the currency markets of China, India and the USA are tied together, implying that from the perspective of the US investor, the markets of Brazil and Russia provide the greater diversification benefits. Further, the USA is found to be the source of the common trend (CT), suggesting that it leads the three (cointegrated) markets towards the long-run equilibrium relationships. Brazil and India share no short-run lead-lag relationship with the USA. JEL Classification: F31, G15

Suggested Citation

  • Ramya Rajajagadeesan Aroul & Peggy E. Swanson, 2018. "Linkages Between the Foreign Exchange Markets of BRIC Countries—Brazil, Russia, India and China—and the USA," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(3), pages 333-353, December.
    • Handle: RePEc:sae:emffin:v:17:y:2018:i:3:p:333-353
    DOI: 10.1177/0972652718800081
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    More about this item

    Keywords

    BRIC; portfolio diversification; cointegration; structural break; Granger causality; variance decomposition analysis;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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