Testing the Co-movement of BRICS Nations’ Capital Markets

The present study proposes to investigate the short-and long-run integrations and linkages of BRICS countries’ stock markets indices, namely, BSE Sensex, FTSE/JSE Top 40 Index, I BOVESPA, RTS Index and SSE Composite, during the study period April 2004-March 2014. Daily prices of sample indices were collected from Yahoo Finance and FTSE Official Website for the analysis. GARCH (1, 1) Model, Johansen Co-integration test, Vector Error Correction Model and Granger Causality test were used to study the stock market linkages. The results of Johansen Co-integration test indicated that all sample indices of BRICS stock markets were cointegrated with each other. The Vector Error Correction Model revealed that BSE Sensex did not employ shortrun relationship with other sample indices and RTS Index experienced short-run relation with other sample indices, excluding BSE Sensex during the study period. The study concludes that BRICS indices were engaged in long-run relationships and only RTS Index recorded both short-run and long-run relationships with other sample indices. Hence the global investor could use the opportunity for portfolio diversification, both under long-run and short-run periods in BRICS stock markets.