DIVERSIFYING PORTFOLIOS IN EMERGING ECONOMIES: EVIDENCE OF INTER-LINKAGES IN BRICS' STOCK EXCHANGES

Abstract

This study examines the inter-linkages between emerging economies of Brazil, Russia, India, China, and South Africa (BRICS) consortium. Specifically, the study investigates the stock market indices of these countries and analyzes their connectedness by performing descriptive statistics, unit root tests, Granger Causality tests, and Johansen Co-integration tests. Results show a strong inter-linkage between the BRICS nations' stock markets, with India's stock market having a significant impact on Brazil, China, South Africa, and Russia. Diversifying portfolios with foreign market stocks can provide investors with increased returns and reduced risk. Furthermore, countries with weaker integration provide investors with an opportunity to diversify their portfolios at times of high economic volatility to get stabilized returns. This paper highlights the importance of understanding the inter-linkages between emerging country stock exchanges and expanding portfolios into foreign stock exchanges to gain stabilized returns