BRIC and the U.S. financial crisis: An empirical investigation of stock and bond markets

• Published in: Emerging markets review Vol. 14; pp. 76 - 109
• Main Authors: Bianconi, Marcelo, Yoshino, Joe A., Machado de Sousa, Mariana O.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.03.2013; Elsevier BV
• Subjects: Bond markets; Bonds; Brazil; BRIC; Conditional volatility; Dynamic conditional correlation; Economic conditions; Economic crisis; Economic theory; Emerging markets; Finance; Financial crisis; Financial performance; India; International; Investigation; Lehman Brothers Holdings Inc; Markets; News; Russian Federation; Securities markets; Stocks; Stock–bond returns; Studies; Brazil; China; Russia; India; Dynamic conditional correlation; BRIC; Conditional volatility; G01; G15; Stock–bond returns; Financial crisis
• ISSN: 1566-0141; 1873-6173
• DOI: 10.1016/j.ememar.2012.11.002

We examine empirical evidence of the behavior of stocks and bonds from BRIC nations by using daily data from January 2003 to July 2010. We present unconditional and conditional empirical results depending upon a simple measure of U.S. financial stress. In the long term, BRIC bond markets deviate much more from the U.S. financial stress measure than the BRIC bonds and stocks that deviate among themselves. Stock and bond return correlations for Brazil and Russia are significantly large and negative. The own correlations are more important in determining the evolution of the conditional correlations relative to unexpected news. Dynamic conditional correlations between stock returns, bond returns and U.S. financial stress increase after the Lehman Brothers' event in September 2008, except for the bond returns in India. ► U.S. financial stress impact Brazil and Russia. ► India bond markets detached. ► BRIC bond markets deviate from the U.S. financial stress. ► BRIC bonds and stocks volatility increase after the U.S. financial crisis.