Interconnectedness of financial markets in crises in the case of the enlarged BRICS

Gulnara Romashkina, Kirill Andrianov, Djamilia Skripnuk, Yulia Yukhtanova

Article ID: 8536
Vol 8, Issue 12, 2024

VIEWS - 10 (Abstract) 0 (PDF)

Abstract


The article presents a study of the connectivity and integration of sovereign bond and stock markets in 10 BRICS+ countries in the context of crisis instabilities in 2019−2024. Financial markets are becoming more integrated, and an increasing share of public investments are carried out across borders, which increases not only the opportunities for participants, but also the risks of a new crisis. The work used data on central bank rates of the considered countries, yield indices of 10-year government bonds, gold and Brent oil prices. The methods include the analysis of exchange rate dynamics, connectivity estimates based on the multivariate concordance coefficient and two-factor Friedman rank variance analysis, VAR models, Granger predictability and cointegration. The objective of this study is to analyze the interrelationship and cointegration between the sovereign bond and equity markets of selected BRICS+ countries during crisis periods. Our findings indicate that market interrelationship intensifies during crises, which in turn amplifies volatility. Additionally, we observed that none of the economies within the BRICS+ group can be classified as fully integrated or entirely isolated markets. The disruption of the interrelationship in the sovereign bond markets of the group is primarily reflected in the inconsistency of dynamic changes between Russia, China, and India. During the global shock of 2019–2020, the crisis spread from China, followed by Indonesia, and later to the other countries of the group. The financial and debt markets of the sampled countries were able to quickly cope with the severe shocks of the COVID-2019 period. The 2022–2024 crisis, which lasted significantly longer, began in Russia before spreading to countries across Asia and Africa. By 2024, Russia’s sovereign bond yields showed a marked decline. The increased market volatility following 2022 disrupted the integration and interrelationship of the stock and debt markets within the BRICS+ countries.


Keywords


institutes; finances; financial market; government debt; crysis; bonds; international integration

Full Text:

PDF


References


Abad, P., Chuliá, H., and Gómez‐Puig, M. (2014). Time‐varying integration in European government bond markets. European Financial Management, 20(2), 270–290. https://doi.org/10.1111/j.1468-036X.2011.00633.x

Ahelegbey, D. F., Billio, M., and Casarin, R. (2024). Modeling Turning Points in the Global Equity Market. Econometrics and Statistics, 30, 60–75. https://doi.org/10.1016/j.ecosta.2021.10.004

Ahmad, W., Mishra, A. V., and Daly, K.J. (2018). Financial connectedness of BRICS and global sovereign bond markets. Emerging Markets Review, 37, 1–16. https://doi.org/10.1016/j.ememar.2018.02.006

Almansour, B.Y., Elkrghli, S., Gaytan, J.C.T., and Mohnot, R. (2023). Interconnectedness dynamic spillover among US, Russian, and Ukrainian equity indices during the COVID-19 pandemic and the Russian–Ukrainian war. Heliyon, 9(12), e22974. https://doi.org/10.1016/j.heliyon.2023.e22974

Ang, A., and Piazzesi, M. (2003). A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables. Journal of Monetary Economics, 50(4), 745–787. https://doi.org/10.1016/S0304-3932(03)00032-1

Ballard-Rosa, C., Mosley, L., and Wellhausen, R. (2022). Coming to Terms: The Politics of Sovereign Bond Denomination. International Organization, 76(1), 32–69. https://doi.org/10.1017/S0020818321000357

Behanzin, S.O.P.R., Konté, M. A., and Sène, B. (2024). Systemic risk of sovereign debt on West African Economic and Monetary Union’s treasury securities market: Estimation of a delta-CoVaR model. Reference Module in Social Sciences, Elsevier. https://doi.org/10.1016/b978-0-44-313776-1.00076-3

Best, J. (2020). The quiet failures of early neoliberalism: From rational expectations to Keynesianism in reverse. Review of International Studies, 46 (5), 594–612. https://doi.org/10.1017/S0260210520000169

Billah, M., Karim, S., Naeem, M. A., and Vigne, S. A. (2022). Return and volatility spillovers between energy and BRIC markets: Evidence from quantile connectedness. Research in International Business and Finance, 62, 101680. https://doi.org/10.1016/j.ribaf.2022.101680

Bonga-Bonga, L., and Mpoha, S. (2024). Spillover effects from China and the United States to Key Regional Emerging Markets: A dynamic analysis. International Review of Financial Analysis, 91,103015. https://doi.org/10.1016/j.irfa.2023.103015

Cai, Y., Mignon, V., and Saadaoui, J. (2022). Not all political relation shocks are alike: Assessing the impacts of US–China tensions on the oil market. Energy Economics, 114, 106199. https://doi.org/10.1016/j.eneco.2022.106199

Capelle-Blancard, G., Crifo, P., Diaye, M. A., Oueghlissi, R., and Scholtens, B. (2019). Sovereign bond yield spreads and sustainability: An empirical analysis of OECD countries. Journal of Banking & Finance, 98, 156–169. https://doi.org/10.1016/j.jbankfin.2018.11.011

Casarin, R., Grassi, S., Ravazzolo, F., and van Dijk, H.K. (2023). A flexible predictive density combination for large financial data sets in regular and crisis periods. Journal of Econometrics, 237(2), 105370. https://doi.org/10.1016/j.jeconom.2022.11.004

Cevik, E.I., Terzioglu, H.C., Kilic, Y., Bugan, M.F., and Dibooglu, S. (2024). Interconnectedness and systemic risk: Evidence from global stock markets. Research in International Business and Finance, 69, 102282. https://doi.org/10.1016/j.ribaf.2024.102282

Choi, I., and Chang, W.K. (2023). Estimating Historical Downside Risks of Global Financial Market Indices via Inflation Rate-Adjusted Dependence Graphs. Research in International Business and Finance, 66, 102077. https://doi.org/10.1016/j.ribaf.2023.102077

Costantini, M., and Sousa, R.M. (2022). What uncertainty does to euro area sovereign bond markets: Flight to safety and flight to quality. Journal of International Money and Finance, 122, 102574. https://doi.org/10.1016/j.jimonfin.2021.102574

Dahir, A.M., Mahat, F., Hisyam, Ab Razak, N., and Bany-Ariffin, A.N. (2018). Revisiting the dynamic relationship between exchange rates and stock prices in BRICS countries: A wavelet analysis. Borsa Istanbul Review, 18 (2), 101–113. https://doi.org/10.1016/j.bir.2017.10.001

De Vries, K., Erumban, A. and Van Ark, B. (2021). Productivity and the pandemic: short-term disruptions and long-term implications. Int Econ Econ Policy, 18, 541–570. https://doi.org/10.1007/s10368-021-00515-4

Diebold, F.X., and Yilmaz, K. (2012). Better to give than to receive: predictive directional measurement of volatility spillovers. Int J Forecasting, 28 (1), 57–66. https://doi.org/10.1016/j.ijforecast.2011.02.006

Fiordelisi, F., and Galloppo, G. (2018). Stock market reaction to policy interventions. The European Journal of Finance, 24(18), 1817–1834. https://doi.org/10.1080/1351847X.2018.1450278

Ganguly, S. (2024). India, Russia and the Ukraine crisis. The Washington Quarterly, 47(2), 55–69. https://doi.org/10.1080/0163660X.2024.2366108

García-Herrero, A. (2021). Why are Latin American crises deeper than those in emerging Asia, including that of covid-19? ADBI Working Paper, 1221. http://dx.doi.org/10.2139/ssrn.3807136

Gómez-Puig, M., Sosvilla-Rivero, S., and del Carmen Ramos-Herrera, M. (2014). An update on EMU sovereign yield spread drivers in times of crisis: A panel data analysis. The North American Journal of Economics and Finance, 30, 133–153. https://doi.org/10.1016/j.najef.2014.09.003

Hegerty, S. W. (2012). Money market pressure in emerging economies: International contagion versus domestic determinants. Economic Systems, 36(4), 506–521. https://doi.org/10.1016/j.ecosys.2012.05.001

Heymann, D., Brichetti, J. P., Juarros, P., and Montero, G. (2020). Expectations, Coordination Failures and Macro Crises. Journal of Globalization and Development, 11(1), 1–25. https://doi.org/10.1515/JGD-2020-0001

Huang, D., Jiang, F., Li, K., Tong, G., and Zhou, G. (2023). Are bond returns predictable with real-time macro data?. Journal of Econometrics, 237(2), 105438. https://doi.org/10.1016/j.jeconom.2022.09.008

Kakran, S., Sidhuhttps, A., Bajaj, P.K. (2023). Vishal Dagar Novel evidence from APEC countries on stock market integration and volatility spillover: A Diebold and Yilmaz approach. Cogent Economics and Finance, 11(2). https://doi.org/10.1080/23322039.2023.2254560

Kireyev, A., and Leonidov, А. (2021). Twin trade shocks: Spillovers from US-China trade tensions. International Economics, 167,174–188. https://doi.org/10.1016/j.inteco.2021.05.007

Li, Y., Chen, S., Sensoy, A., and Wang, L. (2024). Over-expected shocks and financial market security: Evidence from China’s markets. Research in International Business and Finance, 68, 102194. https://doi.org/10.1016/j.ribaf.2023.102194

Liu, P., and Huang W.-Q. (2022). Modelling international sovereign risk information spillovers: A multilayer network approach. The North American Journal of Economics and Finance, 63, 101794. https://doi.org/10.1016/j.najef.2022.101794

Malliaropulos, D., and Migiakis, P. (2023). A global monetary policy factor in sovereign bond yields. Journal of Empirical Finance, 70, 445–465. https://doi.org/10.1016/j.jempfin.2022.12.011

Miyakoshi, Т., and Shimada, J. (2022). Network analysis of local currency Asian government bond markets: Assessments of the ABFI and the ABMI. The North American Journal of Economics and Finance, 62,101729. https://doi.org/10.1016/j.najef.2022.101729

Olanipekun, I. O., Güngör, H., and Olasehinde-Williams, G. (2019). Unraveling the causal relationship between economic policy uncertainty and exchange market pressure in BRIC countries: Evidence from bootstrap panel granger causality. Sage Open, 9(2), 2158244019853903. https://doi.org/10.1177/2158244019853903

Prelorentzos, A. G. N., Konstantakis, K. N., Michaelides, P. G., Xidonas, P., Goutte, S., and Thomakos, D. D. (2024). Introducing the GVAR-GARCH model: Evidence from financial markets. Journal of International Financial Markets. Institutions and Money, 91, 101936. https://doi.org/10.1016/j.intfin.2024.101936

Qin, W., Cho, S., and Hyde, S. (2023). Time-varying bond market integration and the impact of financial crises. International Review of Financial Analysis, 90, 102909. DOI: https://doi.org/10.1016/j.irfa.2023.102909

Rahmayani, D., Oktavilia, S., and Putri, P. I. (2021). The impact of Covid-19 pandemic on inflation in Indonesia. Jurnal Ekonomi Pembangunan: Kajian Masalah Ekonomi dan Pembangunan, 22(2), 117–128. https://doi.org/10.23917/jep.v22i2.13861

Ryan, M., Corbet, S., and Oxley L. (2024). Is gold always a safe haven? Finance Research Letters, 64, 105438. https://doi.org/10.1016/j.frl.2024.105438

Shahid, Н., and Shahid, R. (2022). Portfolio connectedness of crypto currencies and GCC stock markets during COVID-19. Journal of Pharmaceutical Negative Results, 13(7). https://doi.org/10.47750/pnr.2022.13.S07.441

Vieira, D. S., de Carvalho, P. V., Curto, J. D., and Laureano, L. (2023). Gold’s hedging and safe haven properties for European stock and bond markets. Resources Policy, 85, 103817. https://doi.org/10.1016/j.resourpol.2023.103817

Wu, T. P., Wu, H. C., Liu, Y. T., Wang, C. M., Wu, C. F., and Zheng, Y. (2024). A bootstrap dynamic multivariate panel Granger causality analysis to examine the relationship between the COVID-19, Delta and Omicron pandemic era and the maritime shipping freight industry. Economic Analysis and Policy, 83, 719–733. https://doi.org/10.1016/j.eap.2024.07.008

Wu, Y. T., and Mai, С. (2024). Dynamic spillover between crude oil, gold, and Chinese stock market sectors –analysis of spillovers during financial crisis data during the last two decades. Heliyon, 10(9), e30219. https://doi.org/10.1016/j.heliyon.2024.e30219

Yarygina, I., Zhiglyaeva, A. V., Vershinina, O. V., and Kuvshinova, Yu. A. (2020). Trade and Economic Cooperation of BRICS: Problems and Prospects. Academic Journal of Interdisciplinary Studies, 9(6),89. https://doi.org/10.36941/ajis-2020-0114

Yilmaz, K. (2010). Return and volatility spillovers among the east Asian equity markets. Journal of Asian Economics, 21(3), 304–313. https://doi.org/10.1016/j.asieco.2009.09.001

Yousfi, M., Farhani, R., and Bouzgarrou, H. (2024). From the pandemic to the Russia–Ukraine crisis: Dynamic behavior of connectedness between financial markets and implications for portfolio management. Economic Analysis and Policy, 81, 1178–1197. https://doi.org/10.1016/j.eap.2024.02.001

Yun, J. (2023). International linkages of term structures: US and Korea Treasury bond yields. Journal of International Money and Finance, 138, 102924. https://doi.org/10.1016/j.jimonfin.2023.102924

Zhang, L., Sindakis, S., Dhaulta, N., and Asongu, S. (2024). Economic crisis management during the COVID-19 pandemic: The role of entrepreneurship for improving the Nigerian mono-economy. Journal of the Knowledge Economy, 15(1), 828–859. https://doi.org/10.1007/s13132-023-01117-y

Zhuang, Y., Zhang, D., Tang, P., and Peng, H. (2024). Clustering effects and evolution of the global major 10-year government bond market structure: A network perspective. The North American Journal of Economics and Finance, 70, 02064. https://doi.org/10.1016/j.najef.2023.102064




DOI: https://doi.org/10.24294/jipd.v8i12.8536

Refbacks

  • There are currently no refbacks.


Copyright (c) 2024 Gulnara Romashkina, Kirill Andrianov, Djamilia Skripnuk, Yulia Yukhtanova

License URL: https://creativecommons.org/licenses/by/4.0/

This site is licensed under a Creative Commons Attribution 4.0 International License.