Asymmetric Linkages between BRICS Stock Returns and Country Risk Ratings: Evidence from Dynamic Panel Threshold Models

Abstract

This study investigates the asymmetric linkages between the five BRICS (Brazil, Russia, India, China and South Africa) countries’ stock markets and three country risk ratings (financial, economic and political risk) in the presence of major global economic and financial factors. Using the dynamic panel threshold models, we find evidence of asymmetry in most cases. However, the significance and the signs of the effects of these risk ratings on the BRICS market returns differ across the lower and upper regimes. Furthermore, improvements in the global stock, West Texas Intermediate (WTI) and gold markets enhance the BRICS stock market performance. Increases in implied volatility indices lead to drops in the BRICS markets.

Do country risk and financial uncertainty matter for energy commodity futures?

“…The bottom right panels of Figures show graphical results of the political risk–return relation for the IVQR parameter estimates and 95% confidence intervals. This is also consistent with Mensi et al (). The fact that return responds negatively to political risk can be explained by the risk aversion of investors (Naifar & Hammoudeh, ).…”

“…Based on the financial perspective, as shown in Table , the evidence for crude oil and heating oil shows that while financial risk rating has significantly negative effects in the lower quantiles of the commodity returns distribution, they become significantly positive in the upper quantiles. This asymmetric relationship is consistent with the findings of Mensi et al () for BRICS (Brazil, Russia, India, China, and South Africa) stock market returns. In the natural gas market, financial risks have a consistently negative impact on commodity returns like economic risks do.…”

“…Given that there is no clear prediction of how country risk may affect return, it is meaningful to distinguish the effects of country risk on commodity prices under different market states. Furthermore, several empirical studies have more precisely indicated that there is a nonlinear relationship among country risk, macroeconomic factors and stock market returns (T. Liu, Hammoudeh, & Thompson, 2013;Mensi, Hammoudeh, Yoon, & Balcilar, 2017;Mensi, Hammoudeh, Yoon, & Nguyen, 2016;Reboredo & Uddin, 2016). Mensi et al (2017) further indicate that these variables are sensitive to booms and busts in business cycles.…”

Predictive Power of us Monetary Policy Uncertainty Shock on Stock Returns in Australia and New Zealand

“…For the third strand, studies like Mensi et al . (, ) and Christou et al . () find that policy uncertainties would positively affect the stock returns in particular countries.…”

Country Risk Ratings and Stock Market Returns in Brazil, Russia, India, and China (BRICS) Countries: A Nonlinear Dynamic Approach

“…Since 2001, when Jim O'Neill coined the acronym BRIC for Brazil, Russia, India, and China, this group of countries has experienced spectacular growth rates, especially in the period 2001-2010, and has played an increasingly important role in the world economy. 1 In fact, BRICS nations represent 41.3% of the total global population and 20.2% of total global GDP (Mensi et al 2014(Mensi et al , 2016. Furthermore, from January 1988 to September 2015, the excess returns of emerging markets have been higher than in developed markets, while emerging market stock returns have a low correlation with developed market returns (Harvey 2012), providing international investors with favorable risk and return tradeoffs and risk diversification opportunities.…”