BIVARIATE CONDITIONAL HETEROSCEDASTICITY MODEL WITH DYNAMIC CORRELATIONS FOR TESTING CONTAGION IN BRICS COUNTRIES

This article examines the pure form of financial contagions in the BRICS countries, namely Brazil, Russia, India, China, and South Africa. The pure form refers to the propagations of shocks that are not related to shocks in macroeconomic fundamentals, and are solely the result of irrational phenomen...

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Veröffentlicht in:Academy of Accounting and Financial Studies journal 2021-01, Vol.25, p.1-17
Hauptverfasser: Niyitegeka, Olivier, Tewari, Devi Datt
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Sprache:eng
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Zusammenfassung:This article examines the pure form of financial contagions in the BRICS countries, namely Brazil, Russia, India, China, and South Africa. The pure form refers to the propagations of shocks that are not related to shocks in macroeconomic fundamentals, and are solely the result of irrational phenomena, such as panics, herd behaviour, loss of confidence and risk aversion. To test contagion a bivariate conditional heteroscedasticity model was utilised to with an aim to examine the dynamic cross-correlation between the U.S. and Eurozone as source markets and individual BRICS stock markets as target markets. Since financial contagion normally takes place during period of turmoil, contagion between the US and BRICS equity markets was examined around the period of the sub-prime crise, while contagion from Eurozone and BRICS equity markets was analysed in the wake of the EuroZone Sovereign Debt Crisis (EZDC). The for the Sub-prime crisis findings of the present study indicates the presence of cross-conditional volatility between the US and BRICS stock markets. The results also showed that the cross-conditional volatility coefficient is high in magnitude during periods of financial upheaval compared to a tranquil period, hence the conclusion that there was financial contagion in BRIC stock markets (except in Chinese market) following the U.S. sub-prime crisis. As for the EZDC, equity markets in Brazil, India and China seemed to react equally (in both the crisis and post-crisis periods) from shocks emanating from European equity market. Hence the conclusion that there was no contagion in Brazil, India and China following the Eurozone sovereign debt crisis. Financial
ISSN:1096-3685