Spillover Effect Due to Macroeconomic Variables: Evidence from Volatility in BRICS Nations

Abstract

Purpose: The aim of this study is to examine the spillover effect of volatility in macroeconomic variables on indices of emerging nations.   Theoretical Framework: This research considered macroeconomic variables such as GDP, FDI, Inflation, and money supply and indices of emerging nations (Brazil, Russia, India, China and South Africa). This paper focuses on identifying how stock markets of BRICS are affected by variations in macroeconomic variables.   Design/Methodology/ Approach: The data on GDP, inflation rate, FDI, Money Supply, and Indices (Chinese BOVESPA, Russian, Indian Bombay Stock Exchange, Chinese Shanghai Stock Exchange (SSE) Composite Index, and South African FTSE) was drawn for a period of 20 years from 2001 to 2021. Prices of the indices were acquired from www.investing.com. Macroeconomic indicators data was taken from the www.worldbank.org. For analysis, the VECM and VAR models are prepared.   Findings: The findings show that all the economic variables are considerably leaving a spillover impact on the prices of BRICS nations. VECM models state relationship among the GDP, FDI, Inflation, and money supply and Stock markets of Brazil, Russia, India, and China. However, in the case of South Africa, these economic variables have a dynamic correlation with its stock market index as is depicted through the VAR Model.   Research Practical and Social implications: The study addresses the issue of spillover effect of factors which had indirect impact on the volatility of the indices of BRICS nations. In the times of such high level of uncertainties like covid pandemic it is important to understand the direct and indirect factors and variables which may impact the variability of the stock markets.   Originality/Value: This articles has conducted an extensive analyses of macroeconomic variables and their impact on indices of emerging nations. The authors provides clarity and insights in understanding the variability in markets in depth.