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Journal of Economic Integration 2007 June;22(2) :369-381.
Analysis of Mean and Volatility Spillovers Using BRIC Countries, Regional and World Equity Index Returns
Ramaprasad Bhar and 
Biljana Nikolova 
The University of New South Wales
ANZ Banking Group Ltd
Copyright ©2007 Journal of Economic Integration

This paper analyses the degree of integration of the BRIC countries on a regional and global basis, achieved by using daily equity index level data. The paper concludes that a high degree of integration exists between the BRIC countries and their respective regions, and to a lesser extent, the rest of the world. Regional trends are found to have a much greater influence than world trends upon the stock return process of the BRIC countries. The world index returns, and most likely the US equity market returns, have a significant influence upon the variance of returns seen across Brazil, Russia and India. China is the only country where there exists a negative relationship between volatility spillover effects on a regional and global basis. This suggests existence of diversification opportunities for investment managers. Global portfolio managers can still add value from investments in these countries, however the increased levels of integration of these economies highlight the need for portfolio stock selection strategies as well as investment in specific growth areas within these economies, rather than taking a position in the country index.

JEL classification: E37, G15

Keywords: Volatility spillover | GARCH-in-Mean | Market integration
1. Bekaert, G. (1995), Market integration and investment barriers in emerging equity markets, World Bank Economic Review 9, 75-107.
2. Bekaert G. and Harvey R. H. (2000), Foreign speculators and emerging equity markets, Journal of Finance 55, 565-614.
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