Investigating the Leverage Effect and Volatility in the BRIC Countries’ Equity Markets After the U.S. Financial Crisis

Abstract

The BRIC universe, which includes Brazil, Russia, India, and China, represents one of the most promising emerging market equity composites. This study examines the existence of a leverage effect and time-varying risk parameters in relation to the BRIC countries’ stock market returns by employing GARCH, TGARCH-M, and EGARCH-M models. The period of study runs from July 2009 to June 2014 and assesses the existence of a leverage impact of a negative shock on the conditional variance, as compared to a positive shock in each of the BRIC countries. A global investor should discount and understand the volatility behavior as well as the business environment of the investee country as it changes over time.

TOPICS: Security analysis and valuation, emerging, statistical methods, performance measurement