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Brent Prices and Its Impact on Financial Markets of BRIC Nations

Author

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  • Narayanan Krishna Kumar

    (Dean, State Bank Institute of Leadership (SBIL), India)

Abstract

The paper examines, the relationship and impact between Brent Prices and the Stock Market Indices of the BRIC Nations over both the short-run and the long-run. The paper revisits the traditional behavioral finance wisdom that higher Brent prices hurt Stocks. And it is studied with the time-series data of respective vital indices of Bovespo, MICEX, Nifty and Shanghai Composite in relation to Brent Price Index. The stochastics are studied with tools like ERS Unit Root Test, Johansen Co-integration Test, Vector Error Correction Model and Impulse Response Analysis. Not only that the traditional view of inverse relationship between Brent Prices and Stock prices is no longer valid, it is clearly established that the relationship attributes cannot be generalized, even amongst emerging economies in BRIC Nations. Further, the Paper examines both the short-run and long-run aspects in these markets and clearly establishes the relationships are not similar. The results from the impulse response function clearly reveals that in the case of oil exporting countries like Brazil and Russia, higher Brent prices have positive impact and effects on Stock indices. But, in India higher Brent prices has negative effect. The Vector Error Correction Model reveals that in the case of Brazil and China, Brent prices and the respective Stock indices are in a long-run equilibrium relationship, and the Stock indices follows and adjusts to Brent shocks much faster than it does in case of Russia and India. The findings from Impulse Response Function, further establishes that in oil-exporting Nations like Brazil and Russia, higher Brent Prices raises the respective Stock Indices, whereas in the case of India and China, higher Brent Prices has muted response in Stock Performances. The outcomes of the study debunk the traditional behavioral finance theory after careful evaluation.

Suggested Citation

  • Narayanan Krishna Kumar, 2020. "Brent Prices and Its Impact on Financial Markets of BRIC Nations," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 19(1), pages 91-108, June.
    • Handle: RePEc:ijb:journl:v:19:y:2020:i:1:p:91-108
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    References listed on IDEAS

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    More about this item

    Keywords

    BRIC Indices & Brent Prices; Oil Price impact on Stock Prices; VECM Estimations for BRIC; Impulse Response Function on BRIC Indices; Conventional Wisdom debunked;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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