Contagion between developed and emerging markets
Date
2020
Authors
Bhagwandin, Asheen
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Abstract
This study examines the existence of contagion effects between the developed global economy and the BRICS economies (Brazil, Russia, India, China and South Africa) through the examination of linkages between global risk shocks and these markets. A structural vector autoregressive model with block exogeneity restrictions was estimated using macroeconomic and financial data for the BRICS markets and United States data (specifically the Volatility Index and the Federal Fund Rate) as proxies for global risk, all of a monthly frequency. Our primary findings are that contagion effects are present in exchange rates (besides China), sovereign credit default swap spreads and equity prices of our emerging domestic markets as a response of these variables to global risk shocks, although the magnitude of these effects varies by variable type and country. We do not observe significant responses to global risk shocks in government bond yields (besides Russian bonds) and exchange rates, and are thus unable to conclude, from our analysis, whether contagion effects affect these emerging market variables.
Description
A research report submitted in partial fulfilment of the requirements for the degree of Master of Management in Finance and Investment to the Faculty of Commerce, Law and Management, Wits Business School, University of the Witwatersrand, Johannesburg, 2020
Keywords
Contagion, BRICS, Global risk, Emerging Markets