Title: Analysis of structural linkages and inter-temporal stability in a cross-country BRICS portfolio

Authors: Harman Arora; Parminder Kaur

Addresses: Constitution Club of India, Rafi Marg, New Delhi – 110001, India ' Jagan Institute of Management Studies, Sector 5, Rohini, New Delhi – 110005, India

Abstract: The paper attempts to evaluate prospects of constructing a successful cross-country portfolio by studying structural linkages and inter-temporal variations in the equity markets. To investigate market interdependence, shortterm capital co-movement was studied using Granger causality. Further, markets were tested for financial contagion and long-run interdependence using the Johansen co-integration test. The time-varying nature of capital markets was also tested through vector auto-regression modelling and impulse response function. The paper offers insights that co-integration amongst subject markets does not exist in long run and each market is mostly affected by price movements in its own market rather than fluctuation in other portfolio country stocks. The research cogently proposes economic feasibility of cross-country equity portfolio given the heterogeneity in markets and also advocates on intertemporal asset allocation strategies like pairs trade, long/short equity, managed futures and derivatives-based hedging.

Keywords: BRICS; emerging markets portfolio; co-integration; market interdependence.

DOI: 10.1504/IJMEF.2019.100266

International Journal of Monetary Economics and Finance, 2019 Vol.12 No.2, pp.152 - 168

Received: 14 Sep 2018
Accepted: 24 Feb 2019

Published online: 23 Jun 2019 *

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