The Structure of Linkages and Causal Relationships Between Bric and Developed Equity Markets
2011 International Conference on Information and Finance IPEDR vol.21 (2011) © (2011) IACSIT Press, Singapore
The structure of linkages and causal relationships between BRIC and developed equity markets
Norasyikin Abdullah Fahami+
Mara University of Technology
Abstract. The study aims to examine the structure of linkages and causal relationship between the world’s fastest emerging economies (Brazil, Russia, India and China) and the selected developed countries namely, the United States (US), the United Kingdom and Japan. The leading indices of these stock markets are used as proxies of the market. The period of analysis is being divided into three sample period; the pre-crisis period spans from January 10, 2005 to July 22, 2007, during the crisis period spans from July 29, 2007 to January 10, 2010 and post-crisis period spans from January 11, 2010 until recently July 21, 2011. As for the methodology, the study conducted Augmented Dickey Fuller (ADF) and Phillip Pheron (PP) tests as prelimenary evaluation before proceed with Johansen Juselius (JJ) cointegration test and Granger causality test. The results show that all the stock markets under study are cointegrated in pre-crisis, during crisis and post crisis period. However, increasing causalities are recorded among stock markets in the crisis period as compared to pre- and post-crisis period. The results were in line with studies by Kassim (2010) and Chittedi (2009). China was the most influential stock market before the crisis period, whereas United States influenced most of the major equity markets during the period of turbulence. These indicate that, what happen to US stock market bring impact to the other equity markets worldwide despite the emergence of BRIC countries.
Keywords: BRIC countries, developed countries, cointegration, Granger causality.
1. Introduction
Interrelationship and dynamic linkages among countries has been the topic of interest for many researchers, practitioners and
The structure of linkages and causal relationships between BRIC and developed equity markets
Norasyikin Abdullah Fahami+
Mara University of Technology
Abstract. The study aims to examine the structure of linkages and causal relationship between the world’s fastest emerging economies (Brazil, Russia, India and China) and the selected developed countries namely, the United States (US), the United Kingdom and Japan. The leading indices of these stock markets are used as proxies of the market. The period of analysis is being divided into three sample period; the pre-crisis period spans from January 10, 2005 to July 22, 2007, during the crisis period spans from July 29, 2007 to January 10, 2010 and post-crisis period spans from January 11, 2010 until recently July 21, 2011. As for the methodology, the study conducted Augmented Dickey Fuller (ADF) and Phillip Pheron (PP) tests as prelimenary evaluation before proceed with Johansen Juselius (JJ) cointegration test and Granger causality test. The results show that all the stock markets under study are cointegrated in pre-crisis, during crisis and post crisis period. However, increasing causalities are recorded among stock markets in the crisis period as compared to pre- and post-crisis period. The results were in line with studies by Kassim (2010) and Chittedi (2009). China was the most influential stock market before the crisis period, whereas United States influenced most of the major equity markets during the period of turbulence. These indicate that, what happen to US stock market bring impact to the other equity markets worldwide despite the emergence of BRIC countries.
Keywords: BRIC countries, developed countries, cointegration, Granger causality.
1. Introduction
Interrelationship and dynamic linkages among countries has been the topic of interest for many researchers, practitioners and
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