IDEAS home Printed from https://ideas.repec.org/a/gam/jijfss/v10y2022i2p27-d791757.html
   My bibliography  Save this article

Comovement across BRICS and the US Stock Markets: A Multitime Scale Wavelet Analysis

Author

Listed:
  • Musumba Batondo

    (School of Economics, University of Johannesburg, Johannesburg 2006, South Africa)

  • Josine Uwilingiye

    (School of Economics, University of Johannesburg, Johannesburg 2006, South Africa)

Abstract

During the past two decades, financial markets across the globe have experienced sporadic waves of crashes. Such waves raise concerns about the vulnerability of global financial markets and the transmission mechanisms of shocks beyond borders. The current study examines the co-movement of stock markets in BRICS (Brazil, Russia, India, China and South Africa) countries and the United States of America (US). It unfolds their exposure to contagion effects during the major financial crises, which have flared up since 2000. Daily close price indices of selected stock markets were used in this endeavour. These data spanned from 5 January 2000 to 10 March 2021. A wavelet decomposition on stock return series was performed on these data to determine the multihorizon nature of comovement (pure contagion or interdependence) and the dynamics of market integration. It emerges that before the 2006-US-housing-bubble and after the 2011/13-EU-sovereign-debt crises, some shocks caused pure contagion. Such transmission generated short-term shocks. Most of the earlier shocks, particularly the US subprime and the EU Sovereign Debt crises, were spread via interdependence. Trade linkages and economic integration improvements enhanced such interdependence. In addition, when analysing the episodes of market integration, it arises that, in general, the short- and long-term integration strengthened and deepened comovement among equity markets. From the portfolio diversification and risk management perspectives, these results indicate that the market in China provided lucrative grounds for short-run investors from the other countries covered in the current study. These results can be helpful for investors interested in portfolio diversification in the BRICS region. They might also help policymakers in the region mitigate the exposure to external shocks of markets.

Suggested Citation

  • Musumba Batondo & Josine Uwilingiye, 2022. "Comovement across BRICS and the US Stock Markets: A Multitime Scale Wavelet Analysis," IJFS, MDPI, vol. 10(2), pages 1-21, April.
  • Handle: RePEc:gam:jijfss:v:10:y:2022:i:2:p:27-:d:791757
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7072/10/2/27/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/2227-7072/10/2/27/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Candelon, Bertrand & Piplack, Jan & Straetmans, Stefan, 2008. "On measuring synchronization of bulls and bears: The case of East Asia," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1022-1035, June.
    2. Khallouli, Wajih & Sandretto, René, 2012. "Testing for “Contagion” of the Subprime Crisis on the Middle East and North African Stock Markets: A Markov Switching EGARCH Approach," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 27, pages 134-166.
    3. Zhong, Ming & Chang,Tsangyao & Tzeng, Han-Wen, 2014. "International Equity Diversification Between the United States and Brics Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 123-138, March.
    4. Zhang, Bing & Li, Xindan & Yu, Honghai, 2013. "Has recent financial crisis changed permanently the correlations between BRICS and developed stock markets?," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 725-738.
    5. Gallegati, Marco, 2012. "A wavelet-based approach to test for financial market contagion," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3491-3497.
    6. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2003. "The Unholy Trinity of Financial Contagion," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 51-74, Fall.
    7. Dirceu Pereira, 2018. "Financial Contagion in the BRICS Stock Markets: An empirical analysis of the Lehman Brothers Collapse and European Sovereign Debt Crisis," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 2(1), pages 1-44.
    8. Syriopoulos, Theodore & Makram, Beljid & Boubaker, Adel, 2015. "Stock market volatility spillovers and portfolio hedging: BRICS and the financial crisis," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 7-18.
    9. Mikko Ranta, 2013. "Contagion among major world markets: a wavelet approach," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 9(2), pages 133-149, March.
    10. Collins, Daryl & Biekpe, Nicholas, 2003. "Contagion: a fear for African equity markets?," Journal of Economics and Business, Elsevier, vol. 55(3), pages 285-297.
    11. Imran Yousaf & Elie Bouri & Shoaib Ali & Nehme Azoury, 2021. "Gold against Asian Stock Markets during the COVID-19 Outbreak," JRFM, MDPI, vol. 14(4), pages 1-23, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang, Yulian & Hamori, Shigeyuki, 2022. "A connectedness analysis among BRICS’s geopolitical risks and the US macroeconomy," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 182-203.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Avishek Bhandari, 2020. "A wavelet analysis of inter-dependence, contagion and long memory among global equity markets," Papers 2003.14110, arXiv.org.
    2. Zied Ftiti & Aviral Tiwari & Amél Belanès & Khaled Guesmi, 2015. "Tests of Financial Market Contagion: Evolutionary Cospectral Analysis Versus Wavelet Analysis," Computational Economics, Springer;Society for Computational Economics, vol. 46(4), pages 575-611, December.
    3. Abubakar Jamaladeen & David E. Omoregie & Samuel F. Onipede & Nafiu A. Bashir, 2022. "A regime-switching skew-normal model of contagion in some selected stock markets," SN Business & Economics, Springer, vol. 2(12), pages 1-20, December.
    4. Oluwatosin Mary Aderajo & Oladotun Daniel Olaniran, 2021. "Analysis of financial contagion in influential African stock markets," Future Business Journal, Springer, vol. 7(1), pages 1-9, December.
    5. repec:ipg:wpaper:2014-062 is not listed on IDEAS
    6. Zied Ftiti & Aviral Tiwari & Amél Belanès, 2014. "Tests of Financial Market Contagion: Evolutionary Cospectral Analysis V.S. Wavelet Analysis," Working Papers 2014-62, Department of Research, Ipag Business School.
    7. Iwanicz-Drozdowska, Małgorzata & Rogowicz, Karol & Kurowski, Łukasz & Smaga, Paweł, 2021. "Two decades of contagion effect on stock markets: Which events are more contagious?," Journal of Financial Stability, Elsevier, vol. 55(C).
    8. Amanjot Singh & Manjit Singh, 2017. "Conditional Co-Movement And Dynamic Interactions: Us And Bric Equity Markets," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 62(212), pages 85-112, January -.
    9. Shahzad, Syed Jawad Hussain & Nor, Safwan Mohd & Kumar, Ronald Ravinesh & Mensi, Walid, 2017. "Interdependence and contagion among industry-level US credit markets: An application of wavelet and VMD based copula approaches," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 466(C), pages 310-324.
    10. Saba Qureshi & Muhammad Aftab, 2023. "Exchange Rate Interdependence in ASEAN Markets: A Wavelet Analysis," Global Business Review, International Management Institute, vol. 24(6), pages 1180-1204, December.
    11. Dewandaru, Ginanjar & Alaoui, Abdelkader & Masih, A. Mansur M. & Alhabshi, Syed Othman, 2013. "Comovement and resiliency of Islamic equity market: Evidence from GCC Islamic equity index based on wavelet analysis," MPRA Paper 56980, University Library of Munich, Germany.
    12. Ginanjar Dewandaru & Rumi Masih & Mansur Masih, 2018. "Unraveling the Financial Contagion in European Stock Markets During Financial Crises: Multi-Timescale Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(4), pages 859-880, March.
    13. Das, Debojyoti & Bhowmik, Puja & Jana, R.K., 2018. "A multiscale analysis of stock return co-movements and spillovers: Evidence from Pacific developed markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 502(C), pages 379-393.
    14. Jozef BARUNÍK & Lukáš VÁCHA, 2013. "Contagion among Central and Eastern European Stock Markets during the Financial Crisis," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(5), pages 443-453, November.
    15. Saiti, Buerhan & Bacha, Obiyathulla & Masih, Mansur, 2014. "Is the global leadership of the US financial market over other financial markets shaken by 2007-2009 financial crisis? Evidence from Wavelet Analysis," MPRA Paper 57064, University Library of Munich, Germany.
    16. Tiwari, Aviral Kumar & Mutascu, Mihai Ioan & Albulescu, Claudiu Tiberiu, 2016. "Continuous wavelet transform and rolling correlation of European stock markets," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 237-256.
    17. Abid, Fathi & Kaffel, Bilel, 2018. "Time–frequency wavelet analysis of the interrelationship between the global macro assets and the fear indexes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 490(C), pages 1028-1045.
    18. Manuel Monge & Luis A. Gil-Alana, 2020. "The Lithium Industry and Analysis of the Beta Term Structure of Oil Companies," Risks, MDPI, vol. 8(4), pages 1-17, December.
    19. Dewandaru, Ginanjar & Masih, Rumi & Masih, A. Mansur M., 2016. "What can wavelets unveil about the vulnerabilities of monetary integration? A tale of Eurozone stock markets," Economic Modelling, Elsevier, vol. 52(PB), pages 981-996.
    20. Yarovaya, Larisa & Brzeszczyński, Janusz & Goodell, John W. & Lucey, Brian & Lau, Chi Keung Marco, 2022. "Rethinking financial contagion: Information transmission mechanism during the COVID-19 pandemic," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    21. Ahmad, Wasim & Sehgal, Sanjay & Bhanumurthy, N.R., 2013. "Eurozone crisis and BRIICKS stock markets: Contagion or market interdependence?," Economic Modelling, Elsevier, vol. 33(C), pages 209-225.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jijfss:v:10:y:2022:i:2:p:27-:d:791757. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.