Establishing the relationship between the returns of stock markets of the BRICS countries

Abstract

Subject. The context of this article is aimed at studying volatility and integration between the stock markets of the BRICS countries. Objectives. The aim is to examine cause-and-effect relationships of stock markets of the BRICS countries. Methods. The data was analyzed using GARCH models to test volatility, and an autoregressive distributed lag (ARDL) model was used to identify the relationship between the BRICS stock market. The residuals of the ARDL cointegration model were tested by the CUSUM test, the Breusch-Godfrey LM Test for serial correlation, and the Breusch-Pagan-Godfrey test for residual homoscedasticity. To check for the presence of cointegration, the Engle-Granger cointegration tests, as well as the Johansen test and the Granger test are performed in the valuation view. Results. The GARCH model shows that the stock markets of the BRICS countries are volatile. The ARDL test confirms the relationship between the stock markets of the BRICS countries. The results of the Engle–Granger, Johansen, and Granger causality tests and bounds testing in the ARDL model show the presence of cointegration between the stock markets of the BRICS countries. Conclusions. As a huge economic power, the BRICS group of countries can change the economic climate of the world, if they are highly financially integrated. However, there is very little detailed study of the BRICS stock market to determine volatility and relationships. This article establishes the volatility of the stock market and the relationship between the return of the stock market of the BRICS countries.