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The predictability of stock market volatility in emerging economies: Relative roles of local, regional, and global business cycles
Author(s) -
Bouri Elie,
Demirer Riza,
Gupta Rangan,
Sun Xiaojin
Publication year - 2020
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.2672
Subject(s) - emerging markets , bric , volatility (finance) , diversification (marketing strategy) , economics , financial crisis , predictability , china , monetary economics , stock (firearms) , stock market , business cycle , capital market , financial economics , profitability index , international economics , business , finance , macroeconomics , physics , marketing , quantum mechanics , mechanical engineering , paleontology , horse , biology , political science , law , engineering
This paper explores the role of business cycle proxies, measured by the output gap at the global, regional, and local levels, as potential predictors of stock market volatility in the emerging BRICS nations. We observe that the emerging BRICS nations display a rather heterogeneous pattern when it comes to the relative role of idiosyncratic factors as a predictor of stock market volatility. While domestic output gap is found to capture significant predictive information for India and China particularly, the business cycles associated with emerging economies and the world in general are strongly important for the BRIC countries and weakly for South Africa, especially in the postglobal financial crisis era. The findings suggest that despite the increase in the financial integration of world capital markets, emerging economies can still bear significant exposures to idiosyncratic risk factors, an issue of high importance for the profitability of global diversification strategies.